THE 

ARTHUR  YOUNG 

ACCOUNTING 

COLLECTION 


Graduate  School  of 
Business  Administration 

Library  of  the 

University  of  California 

Los  Angeles 


H, 

NIA, 


library 

Graduate  School  of  Business  Administration 

University  of  California 

Loa  Angeles  24,  California 


RETAIL  ORGANIZATION 

AND 

ACCOUNTING  CONTROL 


RETAIL  ORGANIZATION 

AND 

ACCOUNTING  CONTROL 

BY 

PHILIP  I.  CARTHAGE 


D.  APPLETON  AND  COMPANY 

NEW  YORK  LONDON 

1920 


COPYRIGHT,    1920,    BT 

D.  APPLETON  AND  COMPANY 


PRINTED   IN  THE   tTNITED   STATES    OF   AMERICA 


HF 
5G 
D5C2 


DEDICATED  TO 
MY  DEAR  WIFE, 

E.  C., 

WHO  INSPIRED  THE  WRITING 
OF  THIS  BOOK 


INTBODUCTION 

With  the  firm  belief  that  Accounting  may  eventually 
become  a  science,  and  that  the  knowledge  accumulated 
through  experience  and  experiments  is  essential  to  the 
furtherance  of  such  science,  I  have  written  this  book  out  of 
my  accumulated  knowledge  and  experience  for  the  benefit 
of  retailing  establishments  and  the  accounting  profession. 

"We  are  living  in  a  world  of  specialization  and  in  writing 
this  book,  I  have  treated  in  its  entirety  retail  control.  All 
the  systems  have  been  installed  with  very  large  organiza- 
tions to  test  their  worth,  prior  to  placing  them  before 
Retailers  and  the  Accounting  world  in  this  volume.  No 
consideration  whatever  is  given  to  manufacturing,  except- 
ing where  it  is  necessary  to  draw  a  comparison.  The 
department  store,  the  specialty  shop,  and  retail  store  of  any 
description  are  within  the  book's  scope. 

I  have  eliminated  as  far  as  possible  technicalities,  that 
the  value  of  this  volume  may  be  enhanced  as  a  textbook 
and  wherever  it  may  be  required  for  a  complete  installation 
of  a  department  store  system. 

I  have  long  felt  the  need  of  a  textbook  on  department 
store  procedure,  and  have  endeavored  to  render  my  book 
useful  by  its  treatment  of  accounting,  management  and 
systems.  Theory  is  entirely  eliminated.  Practical  appli- 
cation and  experience  are  its  governing  features. 

The  management  of  stores  very  often  is  confronted 
with  perplexing  problems.  It  endeavors  to  obtain  knowl- 
edge of  methods  employed  in  other  establishments. 
Twenty  years  in  the  retailing  field  in  various  sections  of 

vii 


INTRODUCTION 

the  United  States  in  the  capacity  of  merchandise  manager, 
sales  promoter,  comptroller  and  office  manager  have  taught 
me  the  requisites  essential  to  the  understanding  of  a  well 
informed  department  store  executive. 

PHILIP  I.  CARTHAGE. 


riu 


CONTENTS 

CHAPTER  PAGE 

I.  BOOKS  IN  USE  AND  PBOCEDUBE 3 

II.  BOOKS  IN  USE 36 

III.  SALES  CHECKS  AND  RETTJBN  CHECKS 73 

IV.  AUDITING 108 

V.    BALANCE  SHEET 131 

VI.     BALANCE  SHEET 149 

VII.     BALANCE  SHEET  —  LIABILITIES 169 

VIII.     TURNOVER .  198 

IX.    MERCHANDISING 219 

X.    MERCHANDISING 240 

XI.    PROFIT  AND  Loss 262 

XII.    BURDEN :.,     ....  287 

XIII.  PROFIT  AND  Loss .:    M    •••    -.     .  303 

XIV.  ALTERATION  DEPARTMENT      ....     ,:     ,;    :.,     .     .  329 


LIST  OF  FOKMS 

NUMBER  PAGE 

1.  Journal  Voucher ?  5 

2.  Burden  Register 10 

3.  Department  Ledger 14 

4.  Purchase  Record 15 

5.  Daily  Bills 19 

6.  Accounts  Receivable  Ledger 20 

7.  Co-workers  Purchase  Account 22 

8.  C.  0.  D.  Record 28 

9.  Cash  Book  Receipts 30 

10.  Cash  Book  Disbursements 31 

11.  Voucher  Check  Record 33 

12.  Voucher  Check  Record 34 

13.  Departmental  Salary  and  Sales  Report 37 

14.  Employees'  Census 39 

15.  Commission  Records 41 

16.  Employees'  Payroll  Ledger 42 

17.  Mark  Up 45 

18.  Mark  Down 47 

19.  Mark  Down  Record 48 

20.  Retail  Reduction  Slip 52 

21.  House  Total  Sales  Record 54 

22.  Sales  Record 56 

23.  Departmental  Inventory  Record 63 

24.  Merchandise  Report  at  Retail 64 

25.  Merchandise  Record 65 

26.  Storage  Record 71 

27.  Sales  Checks 74 

28.  C.  0.  D.  Sales  Check 79 

29.  Transfer  Check 84 

30.  Transfer  Check 85 

31.  Transfer  Check 86 

32.  Transfer  Check 87 

33.  Transfer  Check 88 

34.  Transfer  Check 89 

35.  Inter-Department  Sales  Checks 91 

xi 


LIST  OF  FORMS 


NUMBER  PAGE 

36.  Cash  Refund  Slip 93 

37.  Cash  Refund 93 

38.  Merchandise  Exchange '. 96 

39.  Charge  Credits 99 

40.  Charge  Credits 99 

41.  Sales  Check  Tally 104 

42.  Sales  Check  Tally 105 

43.  Tracer  Check 110 

44.  Station  Cashier  Reports 113 

45.  Summary  of  Daily  Sales 114 

46.  Audit  Summary 116 

47.  Audit  Summary  —  Reverse  Side  of  Form  46 117 

48.  C.  0.  D.  Paste  Card 118 

49.  C.  0.  D.  Register  for  Delivery  Department  or  Office  . . .  119 

50.  Delivery  Sheet 120 

51.  C.  0.  D.  Customers  Record 121 

52.  C.  0.  D.  Check  and  Supply  Tag 123 

53.  Sales  Report  by  Prices 239 

54.  Alteration  Envelope  Ticket 333 

55.  Alteration  Record 335 

56.  Work  Production  Ticket 338 

57.  Alter  for  Stock 340 

58.  Alter  for  Window  Garment 341 


xii 


CHAPTER  I 

BOOKS  IN  USE  AND  PROCEDURE 

Unlike  the  manufacturing  or  jobbing  business,  the 
department  store  finds  it  a  necessity  to  carry  a  consider- 
able number  of  book  records  to  complete  its  net  work  of 
accounting  and  system.  The  details  are  so  extensive  that 
efficient  management  requires  various  information  so  that 
proper  statistics  can  be  set  up,  in  report  form,  to  assist  the 
executives,  department  managers,  and  buyers  to  perform 
properly  the  functions  of  their  positions. 

All  the  books  in  use  make  up  the  Accounting  system,  and 
the  policy  of  the  establishment  is  reflected  therein.  The 
books  must  be  complete  for  the  records  intended,  and  must 
coordinate  with  the  house  and  policy  system.  In  coordi- 
nation, oftentimes  fraudulent  entries,  or  inaccuracy  can  be 
detected;  but,  most  important  of  all,  the  requirements  of 
detail  are  so  necessary  that  insufficient  information  becomes 
the  greatest  burden  to  contend  with.  Aside  from  good 
commercial  requisites,  the  technicalities  of  the  federal, 
state,  and  municipal  laws  require  complete  records  of  com- 
mercial enterprises  to  be  kept.  All  this  may  be  summar- 
ized by  briefly  saying  that  the  accountant  of  a  commercial 
organization  is  a  historian  who  daily  records,  minutely,  the 
incidents  as  they  occur  during  its  life. 

Considerable  attention  should  be  given  to  the  establish- 
ing of  book  records,  so  that  a  repetition  does  not  occur.  An 
analysis  of  most  offices  will  show  that  like  records  are  kept 
in  diverse  forms,  most  of  which  are  never,  or  very  seldom, 
required ;  nor  does  the  information  assist  in  the  management 
of  the  establishment.  Greatest  of  all  is  the  unnecessary, 
indirect  burden  added  to  operations.  The  worth  of  statis- 

3 


4   RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

tics  should  be  given  careful  consideration,  prior  to  estab- 
lishing these  book  records. 

General  Ledger. —  The  General  Ledger  is  the  one  book 
wherein  all  accounts  and  every  transaction  are  summar- 
ized. Unlike  the  manufacturing  company  where  the  bur- 
den of  overhead  is  itemized  in  a  subsidiary  ledger,  which 
reflects  the  details  of  the  cost  accounting  system,  the  Gen- 
eral Ledger  of  the  department  store  records  all  its  work- 
ings, with  the  exception  of  the  one  subsidiary  ledger  known 
as  the  department  ledger.  This  general  ledger  will  contain 
all  balance  sheet  accounts  in  the  first  part  of  the  ledger, 
followed  by  the  profit  and  loss  accounts  and  financial 
income  accounts. 

Journal  Vouchers. —  The  form  of  entry  into  the  general 
ledger  is  made  through  the  Journal  Voucher,  shown  in 
Form  1.  The  author  recommends  but  one  entry.  That  is, 
one  set  of  debits  and  one  set  of  credits  appear  on  a  Journal 
Voucher,  for  auditing  reasons.  The  detail  column  speci- 
fied on  this  form,  supporting  the  general  ledger  columns  of 
debits  and  credits,  is  posted  in  the  Subsidiary  ledgers. 

The  adoption  of  the  Journal  Voucher  not  only  prepares 
for  the  postings  of  the  book  records  in  use,  but  for  the 
special  entries  and  miscellaneous  detail  that  does  not  come 
within  the  provisions  of  the  various  book  records.  The 
voucher  must  be  attested  to  officially  by  signature  before 
posting  in  the  general  ledger.  These  Journal  Vouchers, 
though  primarily  affecting  the  general  ledger,  in  most 
cases  affect  the  merchandising  departmental  ledger  where 
a  profit  and  loss  account  is  involved,  or  subsidiary  ledgers, 
the  control  of  which  are  kept  in  the  general  ledger.  For 
example,  a  change  is  to  be  made  in  an  account  in  the 
accounts  receivable  ledger.  The  detail  will  be  shown  in 
the  detail  column,  prior  to  posting  the  Journal  Voucher, 
in  the  general  ledger.  The  accounts  receivable  bookkeeper 
will  be  obliged  to  initial  the  detail  entry,  indicating  that 


BOOKS  IX  USE  AND  PROCEDURE  5 

the  entry  has  been  posted  to  the  accounts  receivable  ledger. 
Care  must  be  exercised  in  the  proper  distribution  of  these 
postings  where  other  items  are  affected,  so  that  the  work- 
ing papers  or  distribution  book  will  summarize  the  posting, 
for  one  final  entry  for  the  month,  in  the  account  provided 
for  in  the  departmental  ledger.  An  omission  of  this  pro- 
cedure will  affect  the  trial  balance. 

The  Journal  Voucher  cannot  be  accepted  officially  as 
part  of  the  accounting  system  unless  detailed  information 
is  given  supporting  the  Journal  entries.  The  descriptive 
matter  must  be  given  concisely  but  clearly;  it  must  be 
sufficient  to  obliterate  any  doubt  as  to  authenticity. 


JOURNAL  VOUCHER  NO. 


FORM  1. —  JOURXAL  VOUCHEB 

The  Subsidiary  Ledgers. —  Subsidiary  Ledgers  are  those 
which  support  the  general  ledger,  giving  such  details  as 
are  required  to  set  up  either  cost  accounting  or  a  division 
of  the  various  overheads  or  burden.  These  ledgers  should 
be  so  kept  that  a  detailed  statement  is  obtainable,  in  order 
to  arrive  at  every  conceivable  information  from  which  sta- 
tistics can  be  set  up.  Ledgers  that  are  subsidiary  to  the 
General  Ledger  are  Accounts  Receivable,  Accounts  Pay- 
able, Burden  Ledger,  Stock  Ledgers.  In  fact,  any  Ledger, 
the  accounting  of  which  is  controlled  in  the  General  Ledger 
by  controlling  accounts,  is  known  as  a  Subsidiary  Ledger. 
Most  important  of  all,  and  often  referred  to  by  the  man- 
agement, is  the  Departmental  Ledger  (operating  depart- 
ment or  merchandising  departments). 

Distribution  of  Working  Records. —  In  making  the  dis- 
tribution of  the  general  ledger  for  the  departmental  ledger, 


e   RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

there  are  quite  a  good  many  accounts  which  will  be  merged 
into  one.  Then  a  final  total  is  posted  in  the  departmental 
ledger. 

From  an  auditor's  viewpoint,  it  is  customary  to  make 
such  a  summary  on  a  neatly  appointed  sheet.  The  mana- 
ger of  the  office  or  chief  accountant  should  see  that  such 
distributions  are  kept  in  bound  book  form,  from  which 
record,  postings  will  be  made  in  the  departmental  ledger. 
Thus  a  clear  working  record  is  obtained  that  wil!  be  open 
for  proper  auditing.  It  is  customary  for  examining 
accountants  to  set  up  all  detail  on  a  uniform  columnar 
sheet,  known  as  working  papers.  But  these  working  papers 
are  likewise  essential  in  good  office  management,  and,  where 
the  accounting  department  does  not  keep  records  of  this 
nature,  they  are  highly  recommended  for  adoption.  It  will 
be  found  that  they  are  very  often  referred  to  and  are 
very  important  as  reference  records. 

Private  Ledgers. —  Some  organizations,  aside  from  the 
use  of  the  general  ledger,  also  employ  what  is  known  as  a 
Private  Ledger.  While  there  should  not  be  any  distinc- 
tion between  the  general  ledger  and  the  Private  Ledger, 
since  all  controlling  accounts  are  within  the  one  scope,  the 
private  ledger  will  be  used  to  control  investment  accounts, 
also  for  a  few  controlling  accounts  which  will  not 
appear  in  the  general  ledger.  But  both  Private  and  Gen- 
eral Ledger  must  be  taken  into  account  in  rendering  the 
balance  sheet  for  an  organization.  Personal  accounts,  such 
as  those  of  members  of  the  company,  are  generally  kept 
therein.  Impersonal  accounts  are  out  of  place  in  this 
ledger.  Impersonal  accounts  are  those  that  indicate  a 
condition. 

Corporation  Stock  Ledgers. —  The  Stock  Ledgers  of  a 
corporation  will  in  no  way  affect  the  General  Ledger,  with 
the  exception  that  the  record  of  the  amount  of  stock  issued, 
whether  common  or  preferred,  or  treasury  stock,  will  appear 


BOOKS  IN  USE  AND  PROCEDURE  7 

in  the  capital  accounts.  Care  must  be  exercised  in  hand- 
ling the  Stock  Ledger  that  a  clear  and  concise  record  is 
kept  of  all  the  stockholders  of  the  company,  that  the  tax 
stamps  required  by  the  Government  have  been  affixed  prop- 
erly, and  that  all  canceled  stock  is  attached  to  the  stock 
record. 

It  is  customary,  prior  to  issuing  dividends,  that  these 
stock  ledgers  be  closed  for  a  period  of  a  few  days  or  a 
few  weeks.  Thus  an  opportunity,  in  large  corporations,  to 
close  the  books  properly  is  given,  and  to  issue  dividends  to 
stockholders  of  record.  The  Stock  Ledger  must  conform 
to  all  the  requirements  of  the  by-laws  of  the  corporation. 
In  the  larger  corporations,  especially  those  that  conduct 
extensive  branch  offices  or  plants,  a  duplicate  of  the  ledger 
will  be  maintained  at  the  principal  branches.  The  closing 
of  this  ledger  is  generally  prior  to  the  periodical  meetings 
of  the  Board  of  Directors.  This  record  is  governed  by  the 
laws  of  the  state  of  the  company's  incorporation,  and  it  is 
important  that  an  account  record  be  kept  of  all  stockhold- 
ers, their  holdings  of  the  corporate  stock,  their  names  and 
addresses,  alphabetically  arranged,  the  date  their  stock  was 
acquired,  the  stocks  subscribed  for,  the  stocks  open,  all 
transfers  and  records. 

Corporation  Debt  Limitations. —  A  corporation  whose 
by-laws  limit  indebtedness  unless  it  has  been  voted  and 
passed  upon  by  a  quorum  (a  stipulated  number  of  the 
Board  of  Directors,  or  stockholders  of  record)  should  main- 
tain a  record  known  as  "  APPROPRIATION."  The  account- 
ant should  require  a  requisition  specifically  referring  to  the 
particular  appropriation  and  a  report  rendered  periodically 
of  the  conditions  surrounding  each  appropriation,  that 
corresponds  with  the  minutes  of  the  directors'  meetings. 

In  conjunction  with  the  foregoing  records,  a  monthly 
report  should  be  rendered  and  made  a  part  of  the  monthly 
balance  sheet.  This  should  give  analytical  information 


about  all  appropriations,  open  or  overdrawn,  or  contracts 
executed  and  completed  within  the  required  stipulations  of 
the  appropriation. 

Burden  Ledger. —  It  is  known  that  the  elements  of 
cost  accounting,  in  a  manufacturing  organization,  are  those 
of  material,  labor  and  burden,  better  known  as  overhead. 

Some  of  the  larger  department  stores  conduct  their  own 
manufacturing  organizations,  for  articles  that  the  manage- 
ment believes  can  be  manufactured  better  by  themselves 
than  bought  from  manufacturers,  wholesalers,  or  jobbers. 
But  these  instances  are  very  few.  The  department  stores 
buy  their  products,  which  they  place  on  sale,  from  the 
manufacturer.  Thus  two  elements  are  merged  into  one. 
That  is,  material  and  labor  are  merged  into  one  element 
known  as  merchandise,  for  which  a  specific  price  has  been 
paid,  and  on  which  price  an  increase  is  placed  for  retailing. 

There  can  be  but  two  divisions  in  cost  for  a  department 
store:  (1)  Merchandise.  (2)  Burden.  Burden  covers 
everything  but  the  cost  of  the  merchandise. 

Again  we  have  the  manufacturing  organization  which 
has  a  Burden  Ledger.  "  An  account  will  appear  in 
the  general  ledger  as  work-in-process.  This  account  is 
supported  in  the  general  ledger  with  detail,  which  will  be 
summarized  by  giving  rough  stock,  finished  material,  labor 
and  burden.  The  detail  of  the  Burden  is  to  be  found  in 
the  Burden  Subsidiary  Ledger  in  which  the  various 
expenses  are  itemized.  The  burden  is  applied  to  the  work- 
in-process,  the  cost  of  labor  is  added  thereto,  and  reduced 
by  crediting  the  work-in-process  with  finished  stock." 

The  department  store  eliminates  the  subsidiary  burden 
ledger  inasmuch  as  the  burden  is  divided  into  nine  differ- 
ent divisions.  This  is  treated  in  the  Chapter  on  Burden. 
The  divisions  are  the  working  overhead  of  the  retail  estab- 
lishment and  cover  every  detail  conceivable.  They  are 
kept  in  the  general  ledger  under  the  proper  divisions. 


BOOKS  IN  USE  AXD  PROCEDURE  9 

Burden  Payable  Ledger. —  This  ledger,  sometimes 
referred  to  as  the  expense  ledger,  contains  those  personal 
accounts  for  which  impersonal  accounts  are  set  up  in  the 
general  ledger,  giving  the  detail  of  Burden  necessary  to 
conduct  the  establishment. 

The  entries  in  this  ledger  are  received  from  the  Burden 
Purchase  Register,  or  voucher  systems,  of  controlling 
expenses  incurred.  The  control  of  the  Burden  Ledger, 
which  also  corresponds  to  the  Burden  Payable  in  the  gen- 
eral ledger,  receives  its  control  by  summarizing  the  monthly 
or  given  period  of  purchases  as  a  credit,  and  is  debited  with 
cash  paid,  returns,  or  other  debit  entries  applicable  to  this 
account. 

Burden  Register. —  All  expense  bills  are  entered  in  the 
Register  and  segregated  to  the  proper  divisions  of  the  store 
Burden,  from  which  postings  are  made  into  the  Burden 
Payable  Ledger  Personal  Account  (Form  2). 

The  aggregation  of  the  impersonal  entries  is  journalized 
and  proper  disposition  is  made  to  the  general  ledger  accounts. 
Each  division  of  the  store  Burden  must  be  analyzed  prior 
to  closing  the  entries  for  the  month  in  order  that  the  detail 
will  appear  on  the  journal  voucher  for  distribution  to  the 
general  ledger  accounts.  It  is  recommended  that  each  item 
of  store  Burden  be  carried  under  its  own  caption.  The 
larger  a  store  grows,  the  greater  will  be  the  necessity  for 
a  budget  system.  The  adoption  of  the  budget  will  require 
provisions  for  various  expenditures  and  the  appropriations 
must  be  accounted  for,  all  of  which  assists  in  the  control 
of  the  store  Burden. 

Burden  Vouchers. —  An  accountant  who  is  installing  a 
system  in  an  organization  must  not  for  a  moment  so  forget 
himself  as  to  make  the  business  fit  the  system.  On  the  con- 
trary, he  must  organize  the  accounting  system  to  fit  the 
business,  and  to  fit  it  in  such  a  manner  that  the  desired 
results  will  be  obtained  without  any  circumvolution. 


10 


BOOKS  IX  USE  AND  PROCEDURE          11 

In  manufacturing  organizations,  all  Burden  is  summar- 
ized and  known  by  numbers.  This  summary  book  is  better 
known  as  A  CHART  OP  ACCOUNTS,  in  which  the  Administra- 
tion will  have  its  own  set  of  burden,  planning,  and  the  engi- 
neering department,  its  set  of  Burden,  etc.  The  reason  for 
such  distribution  of  Burden  is  the  extensive  number  of 
items  of  which  the  Burden  or  Overhead  is  comprised.  For 
instance,  an  automobile  manufacturing  organization  may 
have  10,000  different  distinct  parts  of  which  the  machine  is 
made  up.  This  manufacturing  organization  may  make  its 
own  tools  and  its  own  parts,  conduct  its  own  brass  foun- 
dries, its  own  aluminum  foundries,  its  own  steel  plants.  In 
order  that  the  business  may  be  departmentized  properly 
and  the  burden  properly  distributed,  A  CARD  OF  ACCOUNTS 
becomes  an  essential  necessity.  The  department  store  can- 
not apply  the  Burden  in  the  form  of  a  CARD  OF  ACCOUNTS 
for  the  reason  that  while  it  is  extensive,  it  is  segregated 
into  a  stipulated  number  of  divisional  burdens. 

Accountants  may  argue  that  Form  4,  which  is  given 
here,  is  not  the  kind  that  is  customarily  used  in  department 
stores.  But  the  evolution  of  accounting  is  such  that  eventu- 
ally the  department  store  will  find  it  to  its  advantage,  and 
in  fact  a  necessity  for  better  accounting,  to  adopt  the 
methods  herein  described. 

Some  stores  have  what  is  known  as  an  expense  record. 
They  enter  the  various  expenses  that  are  incurred  without 
any  divisional  segregation  of  Burden.  While  this  expense 
record  will  produce  a  burden  statement,  its  effect  is  lost  in 
not  giving  proper  application,  and  its  value  does  not  pro- 
duce the  effect  necessary  for  comprehensive  ability  in  the 
furtherance  of  successful  management. 

A  Voucher  system,  in  conjunction  with  the  registering  of 
Burden,  is  in  the  form  of  a  combination  ledger  and  check  on 
the  reverse  side  of  the  check.  A  carbon  copy  is  set  up. 
On  this  are  enumerated  the  gross  amount  of  the  invoice 


12     KETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

purchased,  less  the  returns,  for  which  a  column  is  provided. 
Another  column  may  be  provided  for  claims,  another  for 
the  discounts,  and  another  for  the  net  amount.  At  the  end 
of  the  month,  or  at  the  payment  period,  each  column  is 
added  separately  and  the  total  of  the  net  column  will  be 
the  amount  payable  to  the  company  with  whom  the  liability 
was  incurred.  The  check  is  then  reversed,  and  filled  in 
with  the  check  perforating  ma"v;ne,  and  the  name  speci- 
fied to  whom  the  check  is  payable.  Thus,  we  have,  at  the 
end  of  a  period,  the  check  and  remittance  slip  all  made  in 
one,  as  well  as  the  ledger  entry,  which  is  separated  from 
the  check  itself  by  a  perforation.  This  is  a  great  time- 
saver,  but  many  accountants  of  extensive  experience  prefer 
the  old-fashioned  debit  and  credit  ledger  rather  than  the 
Voucher  system,  or  the  old  ledger  system  in  conjunction 
with  the  Voucher  system.  Experience,  however,  is  the  best 
test  for  the  use  of  both  the  ledger  and  the  voucher  systems, 
all  depending  upon  the  volume  of  business,  the  class  of 
help,  the  store's  locality,  and  the  policy  by  which  it  is 
governed. 

Departmental  Ledger. —  There  are  many  opinions  as 
to  how  a  Departmental  Ledger  for  a  department  store 
should  be  kept.  The  many  audits  made  by  the  author  and  the 
systems  installed  throughout  the  country  show,  we  regret 
to  say,  that  the  percentage  of  retail  establishments  that 
have  no  perfect  Departmental  Ledger  is  deplorable.  Such 
conditions  can  give  only  approximate  results,  rather  than 
accurate  information. 

Form  3  is  a  department  ledger  which  has  been 
conceived  by  the  author  as  being  most  ideal.  It  gives  an 
entire  year's  accounting  for  a  department,  with  the  sum- 
marization, in  the  form  of  a  profit  and  loss  account  on  the 
same  page,  receiving  its  proper  distribution  from  the  sub- 
sidiary supporting  books.  It  presents  an  equitable  distri- 
bution of  burden,  logically  applied  and  governed  by 
economics. 


BOOKS  IX  USE  AXD  PROCEDURE          13 

The  working  of  this  ledger  requires  considerable  care, 
not  only  in  the  distribution  of  the  burden  applied  to  the 
department,  which  is  discussed  in  later  pages,  but  in  the 
auditing  of  the  sales  checks,  which  must  be  perfect  in  every 
respect. 

The  procedure  begins  with  the  entries  from  a  journal 
voucher  on  which  are  summarized  the  cash  sales,  the 
C.  0.  D.'s,  and  the  charges.  Each  department  has  its 
amount,  which  has  been  taken  from  the  sales  record  and 
posted  into  the  working  month  on  the  departmental  ledger 
to  the  respective  department,  thus  giving  the  gross  amount 
of  the  sales.  The  returns, 'Credits  and  allowances  are  like- 
wise posted,  the  total  of  which  is  deducted  from  the  total 
Bales,  giving  the  net  sales  for  the  month,  or  a  total  for 
a  given  date  for  the  fiscal  year. 

The  next  column  of  this  sheet  is  known  as  cost  inventory. 
While  stock  in  the  department  store  is  preferably  con- 
trolled at  retail,  the  cost  of  the  stock  on  hand  must  be  kept. 

Purchases. —  Purchases  signify  the  net  amount  for  the 
month  contracted  for  and  received  by  the  department. 
This  item  will  be  net,  as  the  returns  have  already  been 
deducted.  The  item  provided  for  discount  would  give  the 
amount  of  discounts  received  through  the  department's  pur- 
chases. It  is  customary  for  the  department  to  receive 
credit  for  the  discount  obtained  through  its  purchases  of 
merchandise.  Not  a  few  stores  permit  the  department  to 
receive  the  extra  profit  made  from  discounts,  using  as  a 
basis  for  such  action  the  fact  that  discount  is  a  financial 
income,  that  the  department  is  carried  on  for  merchandis- 
ing purposes  only,  and  that  such  a  department  can  be 
credited  only  with  the  profits  obtained  by  buying  and  sell- 
ing, not  with  profits  obtained  through  financial  transactions. 

The  next  section  of  this  departmental  ledger  sheet  is  the 
burden.  The  burden  of  a  department  store  will  be  divided 
into  the  headings  of  Administrative,  Buying,  Selling  (which 


I 

I 

<!* 


«.       V 

F 

R 


14 


"^ 


0 


0 


£ 


15 


16  KETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

is  made  up  of  salaries,  advertising,  general  and  selling 
expenses),  Occupancy,  Delivery,  Receiving  and  Indirect. 
Monthly  statistical  percentages  are  used  on  this  ledger 
sheet  for  additional  information. 

Division  of  Controls. —  Controls  not  only  apply  to 
accounts  receivable,  accounts  payable  and  expense  accounts 
payable,  but  a  division  of  the  burdens,  under  which  the 
department  store  is  operated. 

The  division  of  burden  as  previously  referred  to  is  set 
up  under  separate  captions  indicating  expenditures 
affected.  The  total  of  these  expenditures  is  controlled  by 
each  division  of  store  burden  and  supported  by  the  detailed 
accounts.  Other  controls  necessary  in  the  general  ledger 
are  will  calls,  C.  0.  D.  's,  and  budget  provisions. 

Controlling  Accounts. —  Controlling  Accounts  are  the 
amount  of  money  which  equals  a  summary  of  the  difference 
between  all  debits  and  credits  that  appear  in  a  subsidiary 
ledger  at  a  given  date. 

These  Controlling  Accounts  are  various.  An  exemplifi- 
cation of  Controlling  Accounts  Receivable  in  a  depart- 
ment store  would  signify  the  total  amount  of  charges,  as 
taken  from  the  charge  sales  checks,  less  charge  credits. 
This  means  such  merchandise  as  has  been  returned  from 
charge  accounts,  less  the  amount  of  cash  received,  less  such 
claims,  allowances,  and  discounts  as  may  be  offered  by  the 
store  in  inducing  charge  accounts;  the  balance  of  which 
should  equal  the  total  amount  of  accounts  receivable.  A 
trial  balance  taken  of  the  accounts  receivable  ledger  should 
equal  the  accounts  receivable  account  in  the  general  ledger 
or  Control  Account. 

Possibly  the  greatest  opening  for  fraud  lies  within  the 
scope  of  accounts  receivable.  Care  must  be  taken  that 
proper  provision  is  established,  in  posting  every  charge 
check  to  the  accounts  receivable  ledger,  that  the  daily  post- 
ings of  these  sales  equal  the  total  amount  of  the  charge 


BOOKS  IN  USE  AND  PROCEDURE         17 

sales  that  appear  in  the  summary  of  the  daily  audit  record. 
This  summary  is  in  part  the  making  of  the  controlling 
account  for  the  accounts  receivable  ledger. 

All  subsidiary  ledgers  must  be  controlled  in  the  general 
ledger.  The  items  used  for  such  control  will  be  such  as 
have  a  direct  bearing  on  the  items  within  the  scope  of  the 
ledger  in  use. 

Dr.  ACCOUNTS  RECEIVABLE  CONTROL  Cr . 


Charges 


Exchanges 

Returns 

Cash  Received 

Allowances 

Discount 

Claims 


Accounts  Receivable  Ledger. —  Accounts  Keceivable  for 
the  department  store  signifies  the  open  account  due  from 
charge  customers  who  have  a  charge  account  with  the  com- 
pany. Charge  customers  in  a  department  store  must 
receive  the  same  attention  as  any  charge  account  of  any 
organization.  Its  credit  investigation  is  necessary  to 
determine  upon  the  customer's  responsibilities,  such  inves- 
tigation culminating  upon  their  credit  lines. 

The  debit  entry  or  charge  for  a  purchase  made  by  a  cus- 
tomer receives  its  source  at  the  time  the  customer  makes 
the  purchase.  This  is  written  up  on  the  regulation  depart- 
ment store  sales  check,  which  is  hourly  sent  to  the  auditing 
department  of  the  general  office. 

The  sales  checks  are  passed  to  the  billing  department, 
where  they  are  segregated  to  the  different  ledgers.  Thus 
the  Control  is  properly  set  up  for  the  Accounts  Receivable. 
Then  it  is  posted  to  the  customer's  ledger  account. 

Mechanical  Bookkeeping1. —  Bookkeeping  machines  are 
rapidly  replacing  the  old  hand  method  of  posting  and  bill- 


18     RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

ing,  as  their  use  has  proved  a  timesaver  and  a  more  effi- 
cient method  of  placing  charge  accounts  on  record.  As  yet 
a  perfect  bookkeeping  machine  has  not  been  invented, 
though  there  are  a  few  which  answer  the  desired  purpose. 

The  procedure  of  this  method  of  bookkeeping  is  applicable 
to  most  classes  of  machines.  Charge  sales  checks  are  col- 
lected hourly.  These  are  given  to  the  supervisor  of  the 
accounts  receivable  department,  who  places  them  with  the 
auditor  of  charge  account  checks.  The  cashier's  voucher 
of  the  sales  check  will  be  blue  penciled  with  the  amount  of 
the  charge  sales  as  well  as  the  check  itself.  This  is  done  to 
avoid  any  discrepancy  in  reading  the  amount  chargeable 
and  to  avoid  differences  in  the  final  audit.  After  the  blue 
penciling,  the  vouchers  are  detached  from  the  check  proper 
and  held  until  the  following  morning,  the  check  proper 
having  been  divided  into  the  various  ledger  divisions  for 
control. 

The  checks  are  then  passed  to  a  "  stuff er."  The  termi- 
nology of  stuffer  is  applied  to  the  clerk  who  assorts  the 
checks  alphabetically,  according  to  ledgers,  to  the  various 
ledger  accounts,  so  that  little  time  is  lost  by  the  ledger 
clerk. 

The  auditing  department  verifies  the  control  of  the  top 
checks  as  set  up  by  the  supervisors  or  their  auditors.  When 
this  is  concluded  and  compared  as  to  its  correctness,  the 
auditing  department  will  proceed  further  with  its  own 
audit  in  its  customary  manner.  However,  the  final  daily 
audit  requires  a  further  verification,  so  that  the  total  of 
the  daily  charge  sale  may  jibe. 

Charge  credits  follow  the  same  procedure  and  are  more 
fully  explained  under  this  caption. 

The  supervisor  controls  the  charge  total  for  the  day  as 
well  as  the  credits  for  cash  and  returns.  The  ledger  clerks 
must  balance  their  accounts  daily.  To  permit  balancing 
of  ledgers  the  first  of  the  month  encourages  mistakes,  care- 


BOOKS  IN  USE  AND  PROCEDURE 


19 


lessness  and  loss  of  control  over  the  ledger  clerks  and  their 
work. 

Bills. — There  are  stores  where  the  management  requires 
that  the  billing  department  mail  a  bill  to  the  customer 
aside  from  the  copy  of  the  sales  check  which  is  generally 
placed  in  the  receptacle  containing  the  merchandise  pur- 
chased by  the  customer.  This  is  not  a  question  for  the 
accountant  to  decide,  but  for  the  policy  of  the  house  to  fol- 
low. It  has  its  shortcomings,  but  it  also  is  one  of  the 
means  of  stimulating  collection.  These  bills  are  in  no  par- 
ticular different  from  those  rendered  by  any  business 
organization.  The  terms  appear  without  a  probable  excep- 
tion, monthly  settlements  such  as  "  This  account  is  due 
when  bill  is  rendered  or  payable  on  the  tenth  of  the  month, 
or  the  15th  of  the  month. ' ' 


DAILY  BILL 

OUTFITTERS  TO  WOMEN,  MISSES  &  CHILDREN 
DATE    ' 

SOLD  TO 

ORDER  KO. 

PURCHASED  BY 


PARTICULARS 


CREDITS 


I 


FORM  5. —  DAILY  BILLS 


Name                                                                         Acct.  No. 
Address                                                                      Coin  No. 
City                                                                            Limit 
Registered  as                                                                                        Page  No. 

Old 
Balance 

No. 

Date 

Items 

Charges 

Credits 

Balance 

i 

FoEM   6. —  ACCOUNTS   RECEIVABLE  LEDGER 

20 


BOOKS  IX  USE  AND  PROCEDURE          21 

Ledger  Sheets. —  The  Ledger  Sheet  must  be  an  exact 
copy  of  the  statement  which  is  rendered.'  In  fact,  a  carbon 
copy  is  most  desirable.  These  ledger  sheets  are  generally 
loose  leaf.  A  considerable  amount  of  time  is  saved  by  one 
writing  of  the  bill,  statement  and  ledger  sheet  with  a  carbon 
between,  as  shown  in  Form  6,  thus  giving,  at  the  termina- 
tion of  the  month,  a  written-up  statement  of  the  account. 

Employee's  Ledger  of  Accounts  Receivable. —  The 
volume  of  business  obtained  from  the  coworkers  of  an 
establishment  runs  into  quite  large  proportions.  It  is  cus- 
tomary in  all  stores  to  carry  what  is  known  as  an  employee 's 
ledger,  in  which  ledger  each  coworker  is  charged  (debited) 
with  the  amount  of  purchases,  and  credited  with  the  weekly 
payments  deducted  from  their  salaries.  Receipts  for  the 
amount  deducted  are  given  to  the  coworker  in  order  that 
the  amount  may  be  checked  up  at  any  time  as  to  its  correct- 
ness. In  most  organizations,  where  the  receipt  is  in  use, 
difficulties  arise  where  coworkers  lose  part  of  their  receipts 
and  claim  more  payments  than, the  ledger  calls  for.  To 
obviate  discussions  and  claims  of  this  sort,  duplicate  records 
are  carried  in  the  paymaster's  office.  These  not  only  act 
as  a  check  to  the  employee's  ledger  in  the  bookkeeping- 
department,  but  also  support  the  entries  made  in  the 
employee's  pay  roll  record,  for  amounts  deducted  for 
charges. 

Form  7  is  used  for  this  purpose.  The  coworkers 
receive  a  card  on  which  their  name,  address,  and  depart- 
ment are  given,  also  the  amount  of  their  purchases,  and 
the  date  when  the  purchase  was  made.  Each  week  when 
the  paymaster  makes  a  deduction  from  their  salaries  for 
the  amount  to  be  applied  against  their  purchase,  the  pay- 
master records  on  this  card  the  date  and  amount  of  the 
payment  made,  and  the  balance  due.  At  the  time  .the 
coworkers  receive  their  pay  envelope,  they  acknowledge  the 
payment  on  account  on  this  card,  with  their  signature,  and 


22     RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

return  it  to  the  paymaster,  who  will  place  it  on  file,  ready 
for  the  next  payment.  The  paymaster  must  also  enumerate 
the  various  deductions  made  for  charges  which  are  then 


FORM   62     ZM 


CO-WORKER'S  PURCHASE  ACCOUNT 


NAME. 


No.. 


ADDRESS 
DEPT. 


SAURY. 


REMARKS. 


AMOUNT  OF  PURCHASE  $ 


DATE. 


DATE 

PAYMCNTS 
MApE 

BALANCE 

tout 

SIGNATURE 

FORM  7. —  CO-WORKERS  PURCHASE  ACCOUNT 

journalized  by  the  general  ledger  bookkeeper  for  proper 
posting  and  application  to  the  employee's  ledger  of 
Accounts  Receivable.  Otherwise  the  moneys  deducted  may 
be  passed  to  the  charge  account  cashier  for  entry  in 


BOOKS  IN  USE  AXD  PROCEDURE          23 

Accounts  Receivable  Subsidiary  Cash  Book,  whence  post- 
ing distribution  is  made. 

Accounts  Payable. — The  Accounts  Payable  are  best  kept 
in  control  by  separating  the  open  accounts  for  merchandise 
used  in  trade  from  those  of  liabilities  covering  the  burden. 
This  segregation  is  necessary  not  only  for  better  accounting 
but  for  a  better  control  of  the  stock  on  hand,  which  is 
described  in  the  daily  inventory  record. 

The  control  for  Accounts  Payable  is  set  up  by  a  credit 
from  the  summary  taken  of  the  purchase  journal  or  the 
purchase  register.  It  is  debited  with  the  returns  of  the 
merchandise  purchased,  less  the  claims  and  allowances  for 
expressage  or  overcharges,  less  gross  cash  paid,  notes  or 
acceptances,  and  contra  accounts  that  may  affect  the 
Accounts  Payable. 

In  setting  up  the  control  balance,  a  report  should  be  made 
of  the  various  amounts  that  are  open,  either  weekly  or 
monthly  from  past  dates.  That  is,  if  the  Accounts  Pay- 
able show  $100,000  open  for  January  1st,  a  report  should 
show,  for  example,  $5,000  unpaid  for  October,  $15,000  for 
November,  and  $80,000  for  December.  This  is  accom- 
plished without  any  Accounting  problems  to  contend  with, 
by  simply  deducting  the  amount  of  cash  paid  during  a 
given  month  from  the  Accounts  Payable  of  the  same 
period. 

The  payments  are  made  retroactive  for  the  previous 
months,  unless  payments  are  made  for  current  indebted- 
ness. Such  amounts  paid  are  then  applicable  to  current 
month  liability  for  open  accounts. 

Where  all  liabilities  are  paid  weekly  or  once  a  month, 
the  summary  or  tickler  will  be  of  no  value.  At  least  four 
times  a  year,  generally  quarterly,  an  itemized  statement 
showing  all  debits  and  credits  should  be  requested  from  all 
open  accounts  for  verification  as  to  correctness  of  the 
ledgers. 


24     KETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 
Dr.  ACCOUNTS  PAYABLE  CONTROL  Cr. 


Cash  and  Discount 

Notes 

Acceptances 

Returns 

Allowances 

Claims 

Contra  accounts 


Balances 
Purchases 
Disallowed  claims 
(through  journal) 


Balance  /Accounts\ 
Balance  ^Payable  j- 


Transit  Accounts  Payable. — At  all  times  a  considerable 
volume  of  merchandise  is  in  transit.  While  the  purchaser 
is  liable  for  the  value  of  the  merchandise  in  transit,  pro- 
viding the  shipper  has  complied  with  all  the  requirements 
stipulated  for  merchandise  in  transit  in  the  orders  or  requi- 
sition placed,  the  volume  of  money  which  this  transit  mer- 
chandise involves  depends  upon  the  extent  of  the  organiza- 
tion making  the  purchase.  In  many  instances,  these  rim 
up  to  quite  large  proportions.  It  would  not  be  equitable, 
nor  would  it  conform  with  modern  accounting  principles, 
to  eliminate  the  value  of  such  merchandise  in  transit  from 
any  statement  showing  the  condition  of  business  affairs. 

It  may  be  argued  that  by  setting  up  a  liability  for  mer- 
chandise in  transit  for  which  an  organization  is  liable,  there 
could  not  be  a  proper  offsetting  debit  entry ;  and  that  such 
debit  entry,  if  it  were  set  up,  could  not  be  substantiated  by 
a  tangible  asset.  This  is  readily  overcome  by  setting  up 
an  entry  as  follows : 

Dr.     Transit  companies. 

Cr.     Accounts  Payable  in  transit. 

The  Transit  companies  are  liable  to  the  consignee  for 
any  merchandise  shipped  to  them,  thereby  giving  a  tangible 
offsetting  entry  for  the  establishment,  and  a  liability  to  the 
consignor. 

When  the  actual  merchandise  is  received,  the  journal 


BOOKS  IX  USE  AND  PROCEDURE          25 

entry  set  up  to  account  for  the  liability  is  to  be  reversed. 
It  is  customary  for  all  organizations  to  produce,  monthly, 
a  balance  sheet  and  a  profit  and  loss  statement.  The 
accrued  liability  for  transit  merchandise  should  be  journal- 
ized from  bills  of  lading  or  shipping  receipts,  its  value  being 
reflected  from  invoices  to  cover,  or  from  open  orders  for 
merchandise,  in  order  properly  to  reflect  the  conditions  at 
each  period.  This  journal  for  the  accrual  is  reversed  after 
statement  has  been  rendered,  unless  the  method  is  a  per- 
manent book  account.  Organizations  located  any  great  dis- 
tance from  the  market  of  their  purchasers  should  carry  a 
transit  account. 

Personal  Accounts  of  Creditors. —  Not  very  often  does 
the  management  of  the  department  store  call  for  a  state- 
ment showing  the  amount  of  merchandise  purchased  of  all 
its  creditors.  Ordinarily,  the  thought  upon  this  subject 
would  be  that  the  ledgers  will  answer  the  purpose.  How- 
ever, while  it  is  conceded  that  the  information  can  be  found 
in  the  accounts  payable  ledger,  still  it  does  not  answer  the 
purpose.  For  merchandising  uses,  a  well  managed  account- 
ing department  in  a  department  store  should  render 
monthly  statements,  alphabetically  arranged  and  by 
departments,  of  the  volume  of  purchases  for  the  month,  and 
the  accumulative  amount  for  semifiscal  year  from  each 
creditor. 

In  connection  with  this,  the  amount  of  markdowns  taken 
for  the  month  and  the  accumulation  for  the  semifiscal  year 
should  be  set  up,  so  that,  at  a  glance,  a  prospectus  will  be 
given  of  the  volume  of  the  purchases  and  losses  taken  from 
original  selling.  If  for  any  reason  the  account  should  be 
of  large  proportions,  an  investigation  may  be  made  with 
the  assistance,  if  desired,  of  the  buyer  of  the  department 
to  show  reasons  for  the  extensiveness  of  the  large  pur- 
chases. Often  it  may  disclose  most  interesting  facts  that, 
but  for  such  statements,  would  never  be  disclosed. 


26     RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 


A  DEPAETMENT  STORE  IN  TEXAS 
MERCHANDISE  CREDITORS  ACCUMULATIVE  REPORT 


Purchases 

Accumu- 

Accumu- 

Per 

Creditor's 

for 

lative 

Mark 

lative 

Cent 

Terms 

Name 

month 

purchases 

downs 

Month 

M.  D. 

A  large  store  conducting  an  extensive  merchandising 
department,  and  desiring  to  keep  in  close  touch  with  its 
manufacturers  and  the  condition  of  its  merchandise,  should 
have  a  card  record  of  each  creditor.  Upon  this  a  complete 
synopsis  of  their  business  relations  should  be  depicted. 
These  will  include: 

Creditor's  name  and  address. 

Purchases  for  each  month. 

Average  mark-up  on  original  purchases. 

Mark-downs  for  the  season. 

Terms. 

Class  of  merchandise  purchased. 

Prevailing  selling  prices. 

How  stocks  move. 

Agency  rating. 

Controversy  registered. 

Sold  through  its  salesmen  or  house. 

First  order  placed. 


BOOKS  IN  USE  AND  PROCEDURE          27 

0.  0.  D.  Ledger. —  The  statistics  of  any  department 
store  will  conclusively  prove  that  the  cost  of  handling  a 
sale  is  greatest  when  it  is  a  C.  0.  D.  The  amount  of 
returns  from  C.  0.  D.  sales  vary  from  12  to  50  per  cent. 
The  great  percentage  of  such  returns  necessitate  a  very 
clear  record  of  all  sales  within  the  shortest  time  possible 
after  the  C.  0.  D.  sale  has  been  effected. 

Each  C.  0.  D.  sale,  as  it  arrives  in  the  delivery  depart- 
ment for  delivery  to  the  customer,  receives  a  number.  This 
number  corresponds  with  a  tag  upon  which  a  C.  0.  D. 
check  is  pasted.  It  is  entered  by  consecutive  numbers  in 
the  C.  0.  D.  record,  as  shown  in  Form  8.  The  amount  of 
the  C.  0.  D.  on  this  sheet  will  appear  in  the  balance  column 
set  up  for  the  purpose. 

The  driver  or  chauffeur  in  charge  of  a  delivery  convey- 
ance must  account  for  each  C.  0.  D.  item  either  by  cash  or 
by  the  merchandise  itself.  An  open  list  of  the  C.  0.  D.'s 
unaccounted  for  is  set  up  every  day  and  traced  in  order  tQ 
close  any  open  entries  that  may  have  been  omitted  clerically. 
At  the  end  of  each  month,  a  complete  open  Ijst  is  set  up 
which  can  properly  be  termed  a  trial  balance,  which  amount 
must  equal  the  general  ledger  account  known  as  Open 
C.  0.  D.'s.  A  control  for  this  is  set  up  from  the  amount  of 
C.  0.  D.  sales,  less  credits  either  for  merchandise  returned 
to  stock,  claims,  allowances,  or  any  other  form  of  credit  that 
may  arise  that  would  be  applicable  to  this  account. 

Fraudulent  accounting  may  be  more  numerous  in  the 
C.  0.  D.  records  than  the  accounts  receivable  ledger.  Tests 
should  be  taken  as  often  as  conditions  will  permit  to  recon- 
cile the  total  C.  0.  D.  collections  with  the  entries  in  the 
C.  O.  D.  record  or  ledger.  When  an  open  C.  O.  D.  is  cred- 
ited with  merchandise  returned,  the  buyer's  signature  or 
buyer's  assistant's  signature  and  floor  superintendent's  sig- 
nature acknowledging  the  receipt  of  merchandise  to  the 
department  as  a  customer's  return,  should  appear  on  a 


c 


28 


BOOKS  IN  USE  AND  PROCEDURE          29 

regular  form  card.  This  card  should  be  kept  in  its  numeri- 
cal order  under  the  C.  0.  D.  number  so  that  a  verification 
for  the  correctness  of  the  record  entry  can  be  substantiated. 

The  total  cash  entered  in  this  record  must  correspond 
with  the  C.  0.  D.  column  provided  for  in  the  cash  book. 
The  audit  department  of  the  office  usually  check  back  the 
C.  0.  D.  entries  covering  the  sales  affected. 

In  order  to  eliminate  variances  of  the  trial  balance,  the 
C.  0.  D.  ledger  clerk  should  balance  the  daily  footings  with 
the  audit  as  compiled  in  the  auditing  department  for  both 
sales,  credits  and  balance  C.  0.  D.'s. 

Cash  Book. —  The  department  store  Cash  Book  in  a 
measure  is  not  any  different  in  principle  from  the  Cash 
Books  carried  on  by  any  otheV  business.  Fortunately,  these 
cash  books  are  not  kept  by  one  person ;  at  least,  they  should 
not  be  kept  by  the  same  person  who  has  charge  of  the  actual 
cash  or  the  handling  of  checks.  A  general  Cash  Book,  with 
subsidiary  cash  books,  controls  the  entire  cash  records.  The 
general  Cash  Book  is  divided  into  two  sections:  Cash 
receipts,  better  known  as  the  Debit  cash  —  wherein  all  cash 
receipts  are  entered;  and  the  disbursement  cash  book, 
wherein  all  cash  payments  are  recorded  (Forms  9 
and  10). 

The  well  organized  accounting  office  will  have  all  cash 
receipts  deposited  in  the  banks  daily,  provision  for  this 
deposit  being  set  up  in  the  Bank  column  of  the  Cash  Book. 
Likewise,  all  payments  will  appear  in  the  bank  column  pro- 
vided in  the  Disbursement  Cash  Book.  The  footings  and 
difference  between  the  debit  and  credit  should  be  reconciled 
with  the  regular  '  periodical  bank  balancing  of  the  com- 
pany's  banking  account.  This  will  give  a  verification  of 
the  correctness  of  the  Cash  Book  after  the  checks  that  have 
not  been  cleared  have  been  deducted  from  the  bank's  bal- 
ance statement.  Subsidiary  cash  books  for  accounts  receiv- 
able or  payable  in  detail  support  general  cash  book  entries. 


SMJ 


30 


31 


32     KETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

Chief  Cashier. —  The  terminology  of  Chief  Cashier 
must  not  be  interpreted  as  meaning  a  person  to  whom  all 
cash  receipts  and  disbursements  must  pass  in.  Such  per- 
sons do  not  exist  in  department  stores,  and,  in  fact,  should 
not  be  permitted  under  any  condition.  The  Chief  Cashier 
is  the  person  who  is  head  of  the  various  cashiers  stationed 
in  the  departments  throughout  the  establishment.  Some 
stores  have  a  pneumatic  tube  system,  generally  centralized 
in  the  basement  of  the  store,  or  on  the  top-most  floor,  where  a 
number  of  cashiers  are  seated  and  make  change.  Still  other 
stores  have  a  number  of  cash  registers  where  either  cashiers 
are  employed  or  sales  clerks  make  their  own  change  and 
wrap  their  own  packages  of  merchandise  sold.  Regardless 
of  the  form  in  which  the  cash  is  received  from  the  results 
of  a  sale  of  merchandise,  the  total  cash  for  the  day  must  be 
turned  over  to  the  chief  cashier  after  the  closing  of  the 
store  for  the  day's  business. 

Chief  Cashier's  Duties. —  It  is  important  that  the  chief 
cashier  record  in  a  record  book  (generally  a  yearly  diary 
is  sufficient  or  a  columnar  journal  record)  the  amount  of 
cash  and  checks  or  money  orders  turned  in  by  the  various 
cashiers.  The  money  is  assorted  and  a  duplicate  deposit 
slip  made  of  her  bank  deposit.  The  duplicate  deposit  slip 
acknowledged  by  the  receiving  teller  of  the  bank  and  the 
bank  pass-book,  where  a  bank  retains  the  old  banking 
methods,  must  be  passed  over  to  the  bookkeeper  in 
charge  of  the  general  cash  books.  He  makes  the 
entry  of  net  cash  received  from  sales.  The  auditor- 
in-chief  will  then  reconcile  the  cash  audit  with  the  bank 
deposit. 

Unfortunately,  every  government  contends  with  coun- 
terfeiting of  its  currency.  The  secret  service  branch  of  the 
treasury  department  maintains  a  vigilance  over  such  crim- 
inals. A  publication  issued  periodically  gives  notice  to 
citizens  of  counterfeits  detected.  The  Chief  Cashier  should 


BOOKS  IX  USE  AXD  PROCEDURE 


33 


be  in  touch  with  these  publications  and  keep  the  subordinate 
cashiers  informed  of  counterfeits  in  circulation. 

All  C.  0.  D.  collections  are  deposited  with  the  chief 
cashier,  who  makes  a  separate  record  of  such  receipts  and 
a  separate  deposit  with  a  separate  entry  in  the  general 


fork  QJmttrtij  National  Sank 

Nro  |[nrh. 


(o  the 
Older  erf 


FORM  11. —  VOUCHER  CHECK  RECORD 


34     RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 


FORM  12. —  VOUCHEE  CHECK  RECORD 


cash  book.     The  separate  entry  is  set  up  for  auditing  pur- 
poses and  for  the  C.  0.  D.  control  in  the  general  ledger. 

Bank  Checks. —  The  payment  of  moneys,  whether  for 
accounts  payable,  pay  rolls,  or  moneys  drawn  for  any  pur- 
pose, should  be  in  a  voucher  form.  That  is,  the  check  pay- 
able should  have  a  detailed  statement  on  the  face  of  the 
check,  or  a  perforated  attached  statement  on  which  the 
detail  of  the  remittance  is  shown.  The  duplicate  of  this 
voucher  is  used  as  a  subsidiary  cash  book,  from  which  a 
duplicate  listing  is  made  on  a  summary  sheet,  completing 
the  subsidiary  cash  book.  The  daily  totals  of  payments  are 


BOOKS  IN  USE  AND  PROCEDURE          35 

transferred  to  the  general  cash  book  and  the  banking  con- 
trol accounts. 

Recent  judicial  decisions  are  to  the  effect  that  a  statement 
showing  the  obligations  for  which  a  payment  is  made  or  a 
settlement  intended  should  appear  on  the  face  of  the  check. 
The  foregoing  method  of  payment  of  check  vouchers  could 
then  be  replaced  by  the  process  as  described  under  "  Bur- 
den Vouchers  "  (Forms  11  and  12). 


BOOKS  IN  USE 

Coworkers  Card  Record. —  All  coworkers,  at  the  time 
of  their  employment,  receive  a  Record  Card  which  is  kept 
in  the  paymaster's  office.  This  record  not  only  gives  the 
original  date  of  employment,  but  the  history  of  the  co- 
worker.  From  time  to  time,  the  various  characteristics  or 
the  disposition  of  the  coworker  is  recorded  for  information 
which  may  be  required  at  a  moment's  notice.  A  duplicate 
in  greater  detail  is  kept  at  the  employment  office. 

Departmental  Salary  Reports. —  An  abstract  is  taken 
from  the  pay-roll  ledger  and  commission  record,  and  a 
weekly  report  made  on  Form  13.  Under  the  various  days 
of  the  week,  the  amount  of  each  sales  person's  sales  and 
returns  is  given,  and  the  total  amount  of  his  sales  for  the 
week.  One  copy  is  given  to  the  buyer  or  manager  of  the 
department  and  one  to  the  Superintendent  of  employment. 
With  this  abstract  of  the  weekly  sales  help  report  showing 
sales  production,  a  careful  record  is  kept  of  the  workings 
of  each  person.  At  the  same  time,  if  there  are  any  mis- 
takes occurring  in  the  paymaster's  office,  the  Superintend- 
ent of  employment  and  the  manager  of  the  department  are 
in  a  position  to  detect  errors  which  would  otherwise  escape 
notice,  and  which  perhaps  no  accountant  could  possibly 
discover. 

Coworkers  Census. —  Perhaps  the  most  neglected 
detail  of  accounting  is  the  pay  roll  of  a  business  establish- 
ment. While  it  does  not  seem  possible  for  this  to  be  a  fact, 
the  accountant  will  reconcile  the  bank  checks  and  neglect 
this  greater  avenue  without  comment.  It  therefore  be- 
hooves that  the  construction  of  a  pay-roll  system  be  as  near 

36 


8 


37 


38     RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

perfect  as  possible.  Outside  auditors  at  best  will  either 
make  test  audits  or  check  up  a  single  week. 

Though  the  author  has  previously  made  mention  of  pay- 
roll reports,  such  reports  could  not  be  complete  without  a 
weekly  census.  The  effect  produced  in  the  presentation  of 
a  weekly  census  is  the  enumeration  of  all  the  coworkers  on 
the  pay  roll  of  the  establishment,  including  executives,  own- 
ers or  corporate  members  receiving  a  remuneration  for 
their  services,  the  number  of  employees  only  being  required, 
not  the  names. 

The  employees  of  the  store  are  separated  into  three 
groups:  One  is  the  selling  group,  which  comprises  the 
places  where  salesmanship  and  the  assistance  of  salesmen 
are  required  in  order  to  sell  the  merchandise  to  the  cus- 
tomers. These  employees  are  equivalent  to  productive 
labor  in  manufacturing  organizations.  Next  in  line  are  the 
non-selling  employees.  These  are  coworkers  who  take  no 
part  in  the  selling  of  the  merchandise.  The  workroom 
employees  make  up  the  third  group. 

The  workrooms  in  the  department  store  may  be  many. 
Most  common  of  these  are  the  wearing  apparel,  upholstery, 
art  or  decorators,  and  millinery  workrooms. 

The  number  of  coworkers  in  a  department  and  the  amount 
of  the  pay  roll,  both  for  the  current  year  and  past  year 
for  a  given  week,  should  be  set  up  side  by  side  for  a  quick 
comparison.  It  is  important  that  an  increase  or  decrease 
over  the  previous  year  be  set  up  so  that  it  may  be  com- 
pared with  the  volume  of  sales  for  the  same  period. 

All  departments  are  segregated,  including  the  nonselling 
and  the  executives.  The  weekly  census  is  a  complete  analy- 
sis for  the  entire  pay  roll  of  the  establishment  (Form  14). 

Statistics  allow  a  stipulated  amount  for  salaries  for  the 
various  departments  of  a  store  in  accordance  with  the  vol- 
ume of  trade.  These  statistics,  with  the  census,  enable  the 
management  to  control  the  pay-roll  burden  of  the  establish- 


BOOKS  IN  USE 

CENSUS    FOR   THK  WEEK  ENDING 


39 


CO-WORKERS 

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FOBM  14. —  EMPLOYEES'  CENSUS 

ment.  Often  the  management  may  call  for  a  detailed  list 
giving  the  names  of  the  coworkers  reported  on  the  census. 
This  will  prevent  or  detect  fraudulent  names  or  doctored 
pay  rolls. 

Paymaster. —  The  functions  of  the  Paymaster  are 
numerous.  They  are  not  merely  the  paying  of  salaries. 
He  has  to  keep  records  which,  while  they  do  not  call  for 
bookkeeping  with  a  trial  balance,  yet  require  that  the  check 


40     RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

that  is  requisitioned  for  salary  payment  must  be  substan- 
tiated with  a  summary  of  the  payments  to  be  made  and 
supported  by  an  analysis  of  all  details  of  the  books  of 
record  kept  at  the  Paymaster's  office. 

Pay-Roll  Records. —  Several  books  and  records  are 
required  for  a  complete  record  of  the  Paymaster's  office. 
The  enormous  amount  of  money  that  is  paid  from  this  office 
makes  it  important  that  such  records  be  kept,  and  that  an 
audit  can  be  made  without  any  difficulty  in  reconciling  the 
checks  requisitioned  for  the  pay  roll.  It  is  likewise  import- 
ant to  mention  that  no  money  for  salaries  or  commissions 
should  be  paid  unless  a  regular  bank  check  is  drawn  for  the 
purpose. 

Commission  Records. —  Coworkers  in  department  stores 
are  employed  on  straight  salaries.  However,  there  are' 
departments  in  which  sales  help  receive  not  only  a  straight 
salary  (weekly),  but  a  bonus  or  a  commission  on  the 
amount  of  their  sales  above  a  stipulated  amount,  which  in 
store  parlance  is  known  as  a  quota. 

On  Form  15,  an  ideal  record  is  given.  Each  coworker  is 
given  a  page  on  which  her  record  is  kept.  The  amounts  of 
her  daily  sales  are  entered  and  provision  is  made  for 
returns  by  customers  from  previous  sales.  This  informa- 
tion is  obtained  from  the  auditing  of  the  sales  check  branch 
of  the  general  office.  At  the  end  of  the  week,  the  net  sales 
of  the  sales  person  are  obtained  and  her  quota  deducted, 
giving  the  net  difference  on  which  a  stipulated  percentage 
rate  of  commission  is  paid. 

P.  M.'s. —  The  terminology  of  the  letters  P.  M.  refers 
to  a  premium  given  for  the  sale  of  classified  merchandise. 
It  is  sometimes  given  for  the  sale  of  merchandise  beyond  a 
given  amount.  These  P.  M.'s  are  generally  obtained  from 
the  index  or  tally  card  of  the  individual  sales  person's 
sales  book.  They  can  be  authorized  by  the  buyer  or  the 
buyer's  assistant  of  the  department  in  which  the  sales  per- 


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BOOKS  IN  USE       .  43 

son  is  employed.  The  signature  of  the  authorizer  must 
appear  for  the  amount  issued.  If  a  floor  superintendent 
is  employed,  the  privilege  of  authorization  is  extended  to 
his  office. 

When  the  amount  of  commissions  and  P.M.'s  for  the  week 
is  determined  by  setting  up  the  total  in  the  commission  rec- 
ord, the  result  is  transferred  to  the  general  pay-roll  records. 

Pay-Roll  Records. —  The  accountant  is  familiar  with 
many  forms  of  pay-roll  records.  Those  generally  in  use 
are  a  combination  of  employee's  records  and  time.  Others 
are  the  time  clocks  either  by  card  or  sheet.  Some  stores 
have  time  clerks  to  register  time.  The  employees  call  their 
numbers,  and  their  time  is  registered  in  and  out.  Still 
others  have  punch  cards  which  are  turned  in  at  the  end  of 
the  week  for  computation  of  their  salary.  For  the  purpose 
of  the  system  described  here,  a  card  punched  by  the  co- 
worker  is  used  by  a  time  clock,  registering  in  and  out  four 
times  daily.  At  the  end  of  the  week,  the  time  or  number 
of  hours'  service  rendered  is  entered  on  the  pay-roll  record 
and  the  amount  of  salary  earned  is  extended.  Each  clerk 
will  have  his  own  ledger  page  (Form  16). 

A  column  is  provided  for  charges  that  may  be  deducted. 
These  charges  against  the  coworker  may  be  for  merchan- 
dise, lateness  or  other  items  that  may  occur  during  the 
course  of  business.  The  final  sum  of  the  coworker 's  income 
for  the  week  is  extended  in  the  total  column. 

Government  Requirements  —  Information  at  Source. — 
The  Revenue  Act  of  1918  requires  returns  to  be  made  by 
various  persons  and  companies.  These  returns  are  not 
meant  to  be  used  as  a  basis  for  computing  and  assessing  the 
tax  on  the  person  or  company  making  the  return,  but  to 
furnish  the  revenue  officers  with  accurate  information.  The 
Act  reads: 

"  That  all  individuals,  corporations,  and  partnerships,  in 
whatever  capacity  acting,  including  lessees  or  mortgagors 


44     RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

of  real  or  personal  property,  fiduciaries,  and  employers, 
making  payment  to  another  individual,  corporation,  or 
partnership,  of  interest,  rent,  salaries,  wages,  premiums, 
annuities,  compensations,  remunerations,  emoluments,  or 
other  fixed,  or  determinable  gains,  profits,  and  income 
(other  than  payments  described  in  sections  254  and  255 
pars.  197-198)  of  $1,000  or  more  in  any  taxable  year,  or, 
in  case  of  such  payments  made  by  the  United  States,  the 
officers  or  employees  of  the  United  States  having  informa- 
tion as  to  such  payments  and  required  to  make  returns  in 
regard  thereto  by  the  regulations  hereinafter  provided  for, 
shall  render  a  true  and  accurate  return  to  the  commissioner, 
under  such  regulations  and  in  such  form  and  manner  and 
to  such  extent  as  may  be  prescribed  by  him  with  the 
approval  of  the  secretary,  setting  forth  the  amount  of  such 
gains,  profits,  and  income,  and  the  name  and  address  of  the 
recipient  of  such  payment." 

In  quoting  the  provision  of  the  income  tax,  it  can  readily 
be  seen  that  not  only  a  ledger  record  is  kept  to  coordinate 
with  the  requirements  of  the  Federal  government,  but  also 
an  excellent  record  for  setting  up  and  auditing  the  pay- 
ments for  salaries,  commissions,  premiums,  charges,  etc. 

Mark  Ups. —  The  mark  up  of  merchandise  refers  to  the 
percentage  or  the  amount  of  money  added  to  the  cost  in 
order  to  obtain  the  selling  price. 

In  a  manufacturing  organization,  an  extensive  cost 
accounting  system  should  be  conducted  in  order  to  obtain 
the  cost  of  production.  When  the  final  cost  is  obtained,  the 
profit  should  be  added  thereto,  to  set  the  market  price.  This 
profit  added  to  the  cost  may  also  be  termed  a  mark  up. 
Some  methods  used  by  manufacturing  organizations  will  be 
termed  "  Cost  plus."  The  plus  may  also  be  termed  "  Mark 
up."  The  department  store,  however,  has  no  cost  account- 
ing in  the  manner  conducted  by  the  manufacturing  organi- 
zation, as  the  merchandise  is  purchased  direct  from  the 


a. 

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45 


;46  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

manufacturer,  importer,  wholesaler,  or  jobber.  Sometimes, 
after  adding  transportation  charges  to  receive  the  merchan- 
dise in  the  store  premises,  the  allotted  percentage  of  profit 
expected  from  the  department  must  be  marked  at  a  stipu- 
lated amount  that  will  bring  the  revenue  required  to  cover 
the  profits  for  a  particular  department. 

The  correctness  of  the  mark  up  for  the  various  depart- 
ments is  given  considerable  attention,  a  record  for  which  is 
kept  and  set  up  in  a  daily  inventory  record.  Some  stores 
will  control  mark  up  at  the  percentage  added  to  the  cost, 
others  by  the  percentage  of  profit  that  the  mark  up  will 
produce.  Exemplifying  this,  the  cost  of  an  article  is  $10. 
A  required  mark  up  of  50  per  cent  must  be  added  to  the 
cost  to  obtain  the  selling  price,  giving  the  selling  price  as 
$15.  If  a  percentage  of  profit  is  required  of  25  per  cent, 
the  selling  price  would  be  $13.33  or  33  per  cent  mark  up  on 
the  cost.  Profits  are  not  calculated  at  the  cost  of  a  com- 
modity. They  must  be  produced  from  the  selling  price. 

While  a  department  must  produce  a  stipulated  percent- 
age of  profit,  merchandise  can  not  always  be  marked 
through  a  table  rate.  The  value  of  the  commodity  to 
society  or  the  community  must  receive  every  consideration, 
likewise  sales  promotion  may  find  it  necessary  to  sell  mer- 
chandise at  cost  or  at  a  very  low  percentage  of  mark  up. 
Generally,  the  overhead  necessary  properly  to  manage  a 
department,  plus  the  policy  of  the  store  margin  to  required 
profit,  formulates  the  mark  up  percentage. 

Mark  Downs. —  The  mark  down  problem  is  an  extensive 
one,  and  every  phase  of  merchandising  must  be  taken  into 
consideration.  The  terminology  of  mark  down  is  a  reduc- 
tion in  the  selling  price  of  an  article  regardless  of  its  classi- 
fication or  the  department  in  which  it  is  carried  for  sale. 

There  may  be  several  reasons  why  a  mark  down  is  taken. 
The  most  common  reasons  are,  that  merchandise  having  been 
carried  in  stock  longer  than  is  deemed  advisable,  must  be 


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48 


BOOKS  IN  USE  49 

reduced  in  price  in  order  to  effect  a  quicker  sale.  Or  the 
merchandise  may  be  what  is  known  as  ' '  style  goods, ' '  which 
are  affected  by  the  change  in  seasons  and  new  creations. 
Then,  too,  other  reasons  for  mark  down  may  be  shop  worn 
article,  deterioration  of  goods,  a  department's  becoming 
stagnated  and  not  producing  the  volume  of  business  which 
is  expected.  It  is  necessary,  therefore,  to  reduce  the  mer- 
chandise, and  create  a  sale  in  order  that  the  proper  turn- 
over may  be  accomplished.  Form  18  is  a  mark  down 
record,  which  gives  the  detail  of  the  merchandise  being 
marked  down,  the  amount  of  cost,  original  selling  price, 
the  amount  of  the  reduction,  and  the  reasons  for  such  mark 
down,  together  with  the  proper  executive  authorization. 

From  an  accounting  viewpoint,  the  reason  for  the  mark 
down  is  irrelevant.  But  it  is  a  prime  factor  in  obtaining 
correct  results  since  the  proper  control  of  daily  inventory  is 
maintained  at  the  retail  prices  for  perpetual  inventory. 

The  mark  down  of  merchandise  will  also  affect  the 
required  profit  of  the  department.  Therefore,  in  order 
that  a  complete  record  may  be  kept,  a  mark-down  book 
becomes  one  of  the  essentials  of  the  accounting  system,  as 
.shown  in  Form  19.  The  individual  mark-down  sheet,  as 
described  in  Form  18,  is  entered  individually,  giving  the 
house  number,  which  is  a  number  given  for  ready  reference 
to  all  articles  placed  in  stock,  manufacturer's  number, 
where  the  article  was  obtained.  The  line  number  refers  to 
certain  classes  of  merchandise  that  are  known  by  color,  for 
the  better  description  of  the  class  of  merchandise  carried  in 
stock.  The  date  when  the  merchandise  was  received  in 
stock  is  necessary.  This  information  is  required  in  order 
to  keep  check  on  merchandise  which  is  offered  for  mark 
downs.  Also  the  length  of  time  that  the  merchandise  has 
been  on  the  premises  must  be  known.  In  short,  unless  an 
adequate  reason  is  given,  the  mark  down  is  impossible.  The 
cost  and  last  selling  price  are  required  to  be  entered. 


50     RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

A  certain  class  of  merchandise  may  have  several  mark 
downs,  after  receiving  its  first.  If  its  selling  price  is  not 
sufficient  to  create  its  sale,  a  second  mark  down  is  necessary. 
Oftentimes  a  third  is  required.  The  quantity  of  pieces 
which  have  gone  to  mark  down  is  then  extended  at  the  dif- 
ference between  the  first  and  last  mark  down,  and  the  final 
total  is  arrived  at.  Daily,  these  amounts  are  transferred  to 
the  merchandise  control  record  in  order  to  arrive  at  the 
correct  amount  of  merchandise  in  stock  for  each  depart- 
ment. 

The  mark-down  record  allows  a  column  for  purchases. 
Each  manufacturer  is  allowed  a  page,  or  as  many  pages  as 
may  be  required,  and  the  amounts  of  the  purchases  are 
recorded.  The  object  of  this  is,  from  a  managerial  view- 
point, to  arrive  at  the  percentage  of  merchandise  marked 
down  that  has  been  received  from  the  various  manufactur- 
ers, to  show  the  value  in  trade  of  the  purchases. 

Buyers  and  department  managers  are  prone  to  abide  by 
the  unrelaxing  rule  governing  mark  downs.  In  a  well 
organized  merchandising  store,  a  continuation  of  ignoring 
the  mark-up  or  mark-down  rules  is  sufficient  reason  for  dis- 
missal, for  lost  control  of  the  department  must  surely  fol- 
low. This,  however,  is  eliminated  by  the  inventory  depart- 
ment, which  maintains  an  inventory  staff  that  takes  physi- 
cal inventory  of  each  department  at  least  once  a  month  and 
reconciles  the  book  inventory.  These  inventories  are  taken 
after  business  hours. 

Retail  Reduction  Slips. —  On  all  sales,  regardless  of 
whether  they  are  cash  sales,  charge  sales,  C.  0.  D.  sales,  or 
will  call  sales,  the  sales  check  must  agree  with  the  price 
indicated  on  the  price  ticket  attached  to  the  piece  of  mer- 
chandise sold. 

There  cannot  be  any  deviation  from  this  rule,  and  who- 
soever permits  a  deviation,  whether  to  an  outside  customer, 
a  coworker,  or  an  executive,  must  be  held  strictly  account- 


BOOKS  IN  USE  51 

able  for  such,  deviation,  and  is  subject  to  whatever  action 
the  management  sees  fit  to  impose. 

If  a  coworker,  regardless  of  his  or  her  position,  makes  a 
purchase,  the  full  amount  of  that  purchase  must  appear  on 
the  sales  check.  If  the  coworker  is  entitled  to  a  discount, 
a  retail  reduction  slip  such  as  Form  20  is  to  be  compiled, 
with  all  specifications  of  procedure  printed  thereon. 
The  reasons  for  the  reduction  must  appear  on  the  reduction 
slip,  the  date  of  the  reduction  corresponding  with  the  same 
date  as  the  sales  check.  The  department  in  which  the  sale 
has  taken  place  must  be  specified.  The  sales  person's  num- 
ber must  appear  on  the  sales  check.  The  name  and  address 
of  the  party  making  the  purchase  must  appear  as  well  as 
the  sales  check  number.  The  term  "  loss  on  "  indicates 
the  price  for  which  the  merchandise  was  sold.  T<  The 
original  price  "  signifies  actual  price  for  which  the  mer- 
chandise was  originally  marked  for  selling.  "  The  amount 
of  loss  "  indicates  the  difference  between  the  original  sell- 
ing price  and  the  price  for  which  the  article  was  sold. 

This  amount  of  loss  will,  in  most  instances,  indicate  the 
amount  of  discount,  or  the  difference  between  the  original 
selling  price  and  the  price  for  which  the  article  was  sold  to 
the  coworker ;  difference  between  the  cost  price  and  the  sell- 
ing price.  Any  reduction  whatever,  or  any  deviation  from 
the  regular  selling  price  for  allowances  permitted,  must  be 
authorized  by  the  superintendent  of  the  floor,  or  the  buyer 
of  the  department,  or  his  or  her  assistant.  Such  authoriza- 
tion must  appear  on  the  line  indicated  by  "Authorized  by." 

The  coworkers,  whoever  they  may  be,  must  sign  their 
names  so  that  they  appear  in  duplicate  by  the  use  of  a  car- 
bon paper,  on  both  the  original,  which  is  a  yellow  sheet,  and 
the  duplicate  copy  of  the  retail  reduction  slip,  which  is 
pink.  The  yellow  slip  must  be  attached  to  the  sales  check 
and  sent  to  the  auditing  department  in  the  same  manner 
in-  which  all  sales  checks  are  accustomed  to  be  taken  care  of. 


52     RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 


Form  116A .  2SOO  iet»    4-19 

Retail  Reduction  Slip 


leason. 


The  only  authorized  reasons  are: 
A.    Discount  to  Co-Worker. 
3,    Allowance  to  customer  for  unsatisfactory  Mdse. 


Dept S.  P.  No.. 


Salescheck 
No 


Original  Price.. Amount  of  Loss . 

Authorized  by 


I,  personally,  am  paying  (or  this  merchandise  and  am  entitled 
to  discount. 

Go- Worker  Sign . __ 

This  slip  must  accompany  all  discount*,  allowance*,  and 
deviations  from  the  retail  price. 

FORM  20. —  RETAIL  REDUCTION  SLIP 

If  an  allowance  is  made  to  a  customer,  the  same  pro- 
cedure must  be  followed.  That  is,  all  information  must 
appear  on  the  retail  reduction  slip  properly  signed  by  the 
-authorizer,  and  the  customer  should  sign  her  name  and 
address  on  the  line  provided  for  the  coworker's  signature. 
The  yellow  slips  are  matched  up  with  the  pink  by  the 


BOOKS  IN  USE  53 

auditing  department  to  account  for  any  differences  and 
for  any  missing  slips.  The  yellow  retail  reduction  slips 
are  sent  once  each  week  to  the  statistical  department  by  the 
auditing  department,  where  the  stock  records  are .  adjusted. 

No  matter  how  stringent  the  mark  downs  or  the  one  price 
of  any  store  may  be,  occasions  arise  where  a  reduction  is 
made  on  a  sale.  Especially  is  this  true  where  a  coworker 
of  an  organization  makes  a  purchase  and  special  discounts 
are  a  privilege.  The  control  of  the  various  stocks  must 
receive  prior  consideration.  The  retail  reduction  slip  may 
be  considered  as  an  individual  mark-down  slip  executed  to 
control  stocks  in  addition  to  other  elements. 

Sales  Record. —  Sales  customarily  understood  as  orders 
by  the  wholesaler  or  manufacturer,  may  be  divided  into 
three  classes: 

1.  Unfilled  orders. 

2.  Orders  in  process  of  manufacture. 

3.  Filled  orders,  shipped  to  the  purchaser  or  the  con- 
signee. 

Department  store  orders  are  divided  into  three  groups 
differently  interpreted,  each  of  which  is  an  actual  sold  and 
delivered  classification.  These  are  classed  as 

Cash  sales. 

C.  0.  D.  sales  and  will  calls. 

Charge  sales. 

The  merchandise,  having  been  sold  by  the  various  depart- 
ments of  the  store,  is  recorded  by  sales  checks.  These  sales 
checks,  which  go  through  a  detailed  audit,  will  be  recapitu- 
lated, giving  the  total  sales  of  each  department  for  the  day. 
These  totals  are  entered  in  a  columnar  record,  for  which 
each  department  is  allotted  a  division  with  its  department 
number  or  letter  at  the  head  of  the  sectional  division.  It 
is  important  for  good  accounting  that  each  classification 
of  sales  should  be  set  up  on  separate  pages.  The  reader 
will  recall  the  fact  that  the  total  column  of  the  cash  sales 


54 


BOOKS  IN  USE  55 

in  this  record  must  be  equivalent  to  the  daily  cash  sales 
recorded  in  the  cash  hook  (Form  22). 

There  are  classifications  of  merchandise,  such  as  clothing 
for  men  and  women,  or  furniture,  in  the  case  of  which  con- 
siderable importance  is  attached  to  the  knowledge  of  the 
quantities  sold.  In  such  instances  an  extra  column  should 
be  provided,  immediately  following  the  record  of  sale, 
designating  the  value  and  the  quantity  sold.  The  value  of 
this  record  is  considerable  for  merchandising  purposes. 

Sales  Returns. —  The  record  of  the  merchandise 
returned  by  the  customers,  whether  cash,  C.  0.  D.,  or 
charges,  is  as  important  as  recording  the  actual  sales  result- 
ing from  the  daily  audit  of  all  the  sales  checks. 

Return  merchandise  from  sales  to  the  department  store 
is  quite  a  problem.  This  problem  is  extensive  both  from 
the  standpoint  of  overhead  control  and  of  deterioration  of 
the  merchandise. 

Many  of  the  stores  throughout  the  United  States  have 
found  the  percentage  of  returns  to  be  of  such  proportions 
as  to  necessitate  placing  limitations  on  the  number  of  days 
during  which  the  merchandise  may  be  kept  by  the  cus- 
tomer. Requests  for  credit  are  restricted  in  some  commu- 
nities. The  health  departments  in  many  communities  have 
placed  restrictions  against  the  return  of  certain  classes  of 
merchandise  to  the  department  stores. 

In  the  same  way  that  original  sales  are  recorded  in  the 
columnar  record  best  fitted  for  the  purpose  of  setting  up 
the  accounting,  the  returns  should  be  recorded.  A  separate 
record  of  cash  refunds  —  C.  0.  D.  returns  and  charge  sale 
credits,  including  the  special  column  for  departments 
where  a  record  is  kept  of  the  quantity  sold — should  be  kept. 
"Where  an  exchange  of  a  purchase  is  made,  a  credit  must 
be  made  for  the  return  of  the  merchandise  and  a  new  sale 
recorded.  To  those  unfamiliar  with  department  store  pro- 


56     RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 


cedure,  this  may  seem  an  arduous  task  involving  a  lot  of 
unnecessary  waste.  It  must  be  remembered  that  every 
action  has  a  definite  object.  There  can  be  no  perfunctory 
methods,  as  every  link  of  the  store  system  depends  upon  its 
individual  strength,  upon  the  efficient  coordination  of  its 
every  detail,  as  if  it  were  a  single  unit.  A  diversion  from 
this  procedure  generally  results  in  a  loss. 


191 


Dept. 


FORM  22. —  SALES  BECOED 

Net  Sales. —  Opinions  may  differ  as  to  the  entry  of 
sales.  It  may  be  argued  that,  deducting  the  returns  from 
the  gross  sales,  the  net  sale,  which  is  the  objective,  should 
be  entered  into  the  sales  record,  thereby  eliminating  a  con- 
siderable amount  of  clerical  work  and  bookkeeping.  To  do 
this,  however,  would  defeat  proper  accounting  and  the 
organization  would  not  be  in  a  position  to  set  up  a  statis- 
tical record  to  arrive  at  an  analysis  of  its  sales  in  detail. 
It  would  be  impossible  to  control  the  individual  depart- 
ment, to  know  whether  or  not  the  returns  are  heavier  in 


BOOKS  IN  USE  57 

some  departments  than  in  others,  if  the  percentage  has 
reached  greater  proportions  than  the  limitations  recognized 
in  the  trade.  The  manager  should  be  placed  in  a  position 
to  make  investigation,  and  ascertain  the  reasons  for  such 
returns. 

Here  we  recognize  that  accounting  is  not  merely  a  set- 
ting up  of  figures,  but  that  it  should  be  so  constructed  that 
any  analytical  statement  is  of  material  benefit  to  the  vari- 
ous managers  in  furthering  the  interests  of  the  organiza- 
tion. 

Thus  we  find  that  a  separate  record  of  individual  sales,  a 
separate  record  of  all  sales,  and  a  separate  record  of  all 
sales  returns  must  be  set  up. 

Merchandising  Terminology. —  The  term  MERCHAN- 
DISING defines  the  commodities  that  are  bought  and  sold  by 
an  organization,  including  the  sales  promotion  of  such  com- 
modities. It  may  also  be  termed  a  matter  of  barter,  but 
the  term  barter  is  foreign  to  the  department  store. 

Daily  Inventory. —  There  are  two  essentials  necessary 
to  control  the  department  store : 

1.  The  net  work  of  the  accounting  system. 

2.  The  merchandising  control  which  is  a  nucleus  for  every 
element  entered  into  the  merchandising  problems  of  a  store. 

From  an  accounting  view  point,  the  use  of  this  book  will 
give  the  stock  on  hand  at  cost  monthly  for  the  balance 
sheet  and  the  profit  or  loss  statement,  also  the  departmental 
profit  and  loss  statement.  It  is  necessary  that  accuracy 
should  predominate  at  all  times.  It  may  be  described  fur- 
ther as  a  perpetual  inventory  of  all  wares  carried  on  by  the 
organization.  The  procedure  of  this  record,  if  begun  with 
an  inventory  commencing  with  the  fiscal  year,  must  be 
taken  both  at  cost  and  selling.  The  total  merchandise 
received  daily  as  shown  in  the  purchase  journal  will  be 
transferred  to  the  departmental  record  in  the  column  set 


58     RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

up  for  that  purpose.  The  mark  downs  or  mark  ups  are 
to  be  entered  in  the  mark-down  column.  Generally  a  mark 
up  is  entered  in  red  ink,  deducting  one  from  the  other  in 
order  to  arrive  at  the  net  mark  down  (see  Form  24). 

To  compute  the  figures  in  order  to  arrive  at  the  new 
inventory,  the  inventory  at  the  beginning  of  the  day,  to 
which  the  merchandise  received  is  added,  will,  after  deduct- 
ing the  mark  downs,  give  the  percentage  of  profit  for  the 
department.  One  method  of  ascertaining  this  percentage 
is  by  deducting  the  total  cost  of  the  merchandise  from  the 
total  detail  sales,  giving  the  profit  in  dollars  and  cents. 
This  result  is  used  as  a  dividend,  as  the  divisor  will  be  the 
stock  on  hand  at  retail.  The  quotient  gives  the  percentage 
of  profit. 

The  net  sales  consisting  of  all  cash,  C.  0.  D.,  and  charge 
sales,  less  all  returns  of  every  description  by  departments, 
will  be  entered  into  the  net  sales  column  and  deducted  from 
the  previously  obtained  result,  and  then  extended  to  the  new 
inventory  column,  which  will  be  the  retail  inventory  for  the 
close  of  the  day  or  the  beginning  of  the  next  day.  The  net 
sales  must  be  reduced  to  an  average  cost.  If  the  percentage 
of  profit  for  a  department  be  a  stipulated  amount,  the  dif- 
ference between  that  amount  and  100  per  cent  must,  of 
necessity,  be  the  cost.  That  percentage  taken  from  the  net 
sales  for  the  day  will  give  the  cost  of  sales,  which  result  is 
deducted  from  the  cost  of  inventory  previously  arrived 
at  and  extended  to  the  new  inventory  column  at  cost,  com- 
pleting the  cycle  for  the  day,  taking  into  consideration  the 
inventory  beginning,  merchandise  received,  less  merchan- 
dise returned,  mark  downs,  mark  up  and  sales  for  the  day. 
The  inventory  of  cost  is  in  no  way  affected  by  mark  downs 
or  mark  ups.  It  will  readily  be  seen  that  if  an  article 
cost  $1.00  whether  it  is  sold  for  $2.00  or  whether  it  is  sold 
for  50  cents,  the  cost  is  still  unaffected. 


BOOKS  IN  USE 


Inventory  at  retail     5,000.00 
Inventory  at  cost        3,600.00 


Profit  1,400.00 

5,000 . 00  28  %  profit  mark  up 

retail  inventory 


1,400.00  Profit 
1,000.00 


400.00 
400.00 


Cost  and  profit  equals 

Sales  5,000  100% 

Cost        72%  Profit  28  % 


Cost     3,600.00  Cost  72% 

If  a  profit  of  28  per  cent  is  required  on  the  sales  and  the 
cost  of  an  invoice  is  $3,600,  the  invoice  will  represent  72 
per  cent  of  the  selling  price.  To  obtain  the  correct  selling 
price,  divide  the  72  per  cent  into  the  cost  of  the  invoice  and 
the  quotient  is  the  retail  value  or  selling  price. 

Total  cost  of  selling       100 
5000  Profit  desired  28 


72 


3,600.00  Cost  72 

360 


XXX 

Divide  cost  of  percentage  into 
cost  of  the  article.  The  quotient 
is  the  selling  price. 


60     RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

The  clerical  help  necessary  to  make  the  calculations  of  all 
departmental  records  is  composed  of  girls  or  young  ladies. 
They,  it  must  be  remembered,  are  neither  bookkeepers  nor 
accountants.  They  are  untrained,  and  in  order  to  obtain 
correct  figures,  the  simplest  methods  possible  must  be 
employed. 

Retail  Control. —  Preference  must  be  given  to  the  con- 
trol of  stocks  at  retail  rather  than  at  cost.  Many  discus- 
sions and  numerous  writings  on  this  subject  have  been  pub- 
lished. To  give  briefly  the  most  concrete  reasons,  the 
reader  will  assume  that  the  average  percentage  of  profit 
for  the  department  is  33  1/3  per  cent.  The  overhead  to 
conduct  that  department  is  32  per  cent.  At  a  glance  it  can 
be  seen  what  margin  of  net  profit  the  department  is  work- 
ing on. 

Again,  with  the  knowledge  that  the  department  costs  32 
per  cent  to  carry  (meaning  32  per  cent  on  the  sales)  the 
buyer  will  make  a  purchase,  and  have  a  mark  up  of  25  per 
cent  profit.  That  is,  the  merchandise  will  be  marked  up 
33  1/3  per  cent  on  the  cost,  which  would  be  an  equivalent 
of  25  per  cent  profit  on  the  selling.  Knowing  that  32  per 
cent  is  the  overhead  and  25  per  cent  is  the  profit,  an  imme- 
diate loss  of  7  per  cent  is  sustained  providing  mark  down 
is  not  taken  on  this  particular  purchase  to  make  a  further 
loss. 

Retail  Inventory  Control. —  The  inventory  control  as 
previously  discussed  covers  both  cost  and  retail.  Difficul- 
ties occasionally  arise  in  maintaining  its  accuracy.  A  per- 
fect control  is  given  in  Form  25.  After  many  years  of 
experimenting  and  careful  study,  this  method  has  proven 
successful  to  the  utmost  degree.  Allowances,  however, 
must  be  given  to  leakage  at  least  1/2  of  1  per  cent.  One 
of  the  ^rgest  stores  in  Boston,  doing  an  annual  business  of 
over  sixteen  million,  showed  a  leakage  of  1  9/10  per  cent 
for  all  stocks. 


BOOKS  IX  USE  61 

The  procedure  of  Form  25,  a  sheet  for  each  department. 

First  column  — ' '  Inventory  and  Purchase  Accumulative, ' ' 
The  cost  and  retail  beginning  with  the  inventory  of  the 
fiscal  year  at  cost  and  retail.  Add  daily  new  pur- 
chases at  cost  and  retail  in  their  respective  columns. 
The  accumulated  total  on  line  below  is  the  addition  of 
the  daily  purchase  to  the  previous  obtained  total. 

Second  column  —  "  Purchases  received  this  month." 

Enter  all  daily  purchases  at  both  cost  and  retail.  The 
accumulative  amount  is  shown  on  the  line  below  by 
adding  the  daily  total  to  the  previous  obtained  accumu- 
lated total. 

Third  column  — ' '  Accumulated  Inventory  and  Purchases 

less  Mark  Downs. ' ' 

This  column,  number  3,  is  the  total  of  the  accumula- 
tions of  number  1  and  2  at  retail  less  column  6,  the 
accumulated  mark  downs. 

Fourth  column  — ' '  Profit  on  purchases. ' ' 

The  period  column  indicates  the  season.  The  month 
column  is  for  daily  entries.  The  interpretation  of 
profits  is  the  amount  of  money  added  to  the  cost  for 
all  daily  purchases,  and  is  entered  daily,  the  line  below 
being  the  accumulated  entries  for  the-  month.  This  is 
obtained  by  adding  the  daily  total  to  the  previous 
obtained  total. 

The  period  will  cover  from  the  beginning  of  the  fiscal 
year;  the  accumulated  profits  in  dollars  and  cents  are 
the  accumulated  amounts  added  to  the  purchase  price 
at  cost  to  obtain  the  retail. 

Fifth  column  —  "  Profits  on  Purchases  less  Mark  downs." 
The  fifth  column  is  similar  to  that  of  the  fourth  in  its 
construction,  with  the  exception  that  mark  downs  or 
mark  ups  have  been  considered. 

Sixth  column  —  ' '  Purchases  Month 's  percentage. ' ' 

The  percentage  of  mark  up  on  the  daily  purchases  will 


62     RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

be  represented  in  this  column.  The  accumulative  per- 
centage on  purchases,  giving  no  consideration  to  mark 
downs  or  additional  mark  ups,  will  be  identified  on  the 
line  below  which  signifies  accumulated  figures  through- 
out the  sheet. 

Seventh  column  —  ' '  Mark  downs. ' ' 

Mark  downs  entered  in  the  period  column  represent 
the  mark  downs  taken  for  the  season  in  accumulated 
form.  The  month  column,  daily  mark  downs  for  the 
month,  is  on  the  line  below  "  accumulated  for  the 
month."  Mark  ups  are  entered  in  red  figures  and 
deducted  from  previous  accumulated  total  to  obtain 
the  new  accumulated  total. 

Eighth  column  — ' '  Inventory  stock  Percentage. ' ' 

It  is  necessary  to  know  daily  the  percentage  of  mark 
ups  that  all  stocks  in  a  department  represent.  This 
column  provides  for  the  percentage  information,  which 
is  obtained  by  the  following  process : 

The  accumulative  inventory  and  purchases  divided 
into  the  accumulative  profits,  giving  as  a  quotient  the 
percentage  of  retail  profit  on  stock  carried  by  a 
department. 

Ninth  column  —  "  Sales." 

It  is  important  that  the  net  sales  be  entered  daily  for 
the  period  and  daily  in  the  month  column,  the  line 
below  representing  the  accumulative  sales  for  the 
period  and,  in  the  month  column,  the  net  accumulative 
profit  for  the  month. 

Tenth  column. 

This  column  is  provided  for  the  inventory  shown  at  the 
close  of  the  day. 

Eleventh  column. 

The  accumulative  mark  up,  if  no  mark  down  or  mark 
up  were  ever  taken,  should  be  represented  in  this 
column. 


BOOKS  IN  USE 


— - 


^ 


v*s 


« p, 


1 


65 


§6     RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

To  OBTAIN  INVENTORY  AND  PERCENTAGE 
Daily  result : 

1  —  7  —  9  =  10 
5  -h  by  1  =  8 
4-r-by  2  =  6 
1  —  7  —  9  =  10 

Accumulate. —  Same  procedure  as  above,  using  accumu- 
lated figures. 

In  closing  books  for  the  month  or  year  to  obtain  cost  of 
inventory,  column  11  or  percentage  of  mark  up,  if  no  mark 
downs  or  additional  mark  ups  were  taken,  is  to  be  used. 
This  will  give  a  lower  cost  of  inventory  and  provide  for 
depreciation  of  value  for  stock  disposal. 

Form  24  is  a  summary  of  the  working  sheet  as  shown, 
on  Form  25. 

Advertising  Records. —  One  of  the  most  extensive  and 
largest  items  of  a  department  store's  burden  is  the  adver- 
tising of  the  store  and  its  wares.  Cognizance  must  be  taken  of 
the  fact  that  good  accounting  procedure  can  be  argued  as 
to  whether  or  not  the  entire  expenditure  for  advertising  can 
be  termed  properly  ' '  An  expense  for  operation. ' '  Perhaps 
a  store  that  has  been  organized  for  a  good  many  years 
wishes  to  incorporate  its  affairs  or  place  the  organization 
on  the  open  market  for  sale.  There  is  no  question  but  what 
a  good  will  account  would  be  established,  and  a  value  placed 
on  the  name  of  the  organization  for  its  value  in  the  com- 
munity. "While  good  will  appears  on  the  assets  of  a  com- 
pany in  a  class  by  itself,  its  tangibility,  like  all  other  good 
will  accounts,  cannot  be  considered  as  an  asset  for  the  pur- 
pose of  obtaining  credit  unless  its  earning  powers  are  of  a 
substantial  nature.  Yet,  while  the  organization  is  in  activ- 
ity, a  good  will  which  represents  the  good  name  and  earn- 
ing power  of  the  department  store  is  of  intrinsic  value  in 
the  community  where  it  carries  on  trade.  The  basis  of  the 


BOOKS  IN  USE  67 

good  will  would  then  be  established.  It  would  be  estab- 
lished from  the  extensive  advertising  which  the  store  con- 
ducts, the  policy  pursued  and  substantiated  by  supporting 
such  advertising  with  good  value  to  the  trade  of  the  mer- 
chandise it  carried  in  stock.  However,  the  expenditure  for 
daily  advertising  in  a  newspaper  or  periodical,  or  in  direct 
advertising,  including  the  cost  of  maintaining  the  advertis- 
ing office,  is  properly  charged  to  advertising.  Such  adver- 
tising should  be  distributed  properly,  and  charged  to  the 
various  departments  who  participate  in  the  daily  adver- 
tising. 

"Where  a  store  has  quite  a  number  of  departments  and  all 
the  departments  do  not  advertise,  the  question  arises  as  to 
what  portion  of  the  space  occupied  by  the  name  and 
address  and  editorials  contained  in  the  daily  newspaper  and 
other  advertising  mediums  should  be  distributed  to  such  a 
department.  A  department  that  has  not  advertised  should 
at  least  bear  the  burden  of  cost  for  the  space  used  to  adver- 
tise the  name  and  address  of  the  company,  along  with  the 
editorials.  For  it  is  but  reasonable  to  argue  that  the  vari- 
ous departments  which  did  advertise  were  the  means  of 
bringing  a  certain  number  of  people  into  the  store.  Such 
people  passing  through  the  departments  which  have  not 
advertised,  may  be  prompted  to  make  purchases  from  the 
merchandise  on  display.  Some  organizations  will  only 
charge  advertising  to  such  departments  as  advertise  in  the 
daily  paper.  Those  who  do  not  advertise  are  not  charged 
for  anything.  This  is  the  policy  of  many  a  store,  but  it 
fails  in  making  logically  a  proper  distribution  for  the  adver- 
tising cost. 

Advertising  is  charged  for  at  either  a  stipulated  amount 
per  line  or  per  inch.  In  the  larger  cities  it  is  charged  at 
the  line  rate.  The  proper  method  of  setting  up  the  cost  and 
distribution  by  departments  should  be  followed  daily.  The 
procedure  is  to  ascertain  the  total  number  of  lines  to  a  col- 


68     RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

umn  and  multiply  by  the  number  of  columns  or  parts  of  a 
column  in  which  the  ad  is  set  up.  There  are  nine  lines  to 
an  inch,  and  the  number  of  inches  in  each  column  multi- 
plied by  the  columns  or  fraction  thereof  used  will  give  the. 
total  amount  of  lines  used  for  the  daily  advertising.  The 
columnar  record  is  then  set  up,  of  which  usually  the  date 
column  to  the  left  of  the  page  will  be  used  for  the  dates 
covering  the  entire  month.  The  various  departments  will 
be  designated  at  the  head  of  the  column,  and  the  amounts 
of  space  -used  and  the  cost  in  dollars  and  cents  are  set  up 
alongside  of  each  other,  a  daily  total  column  cost  for  the 
advertising. 

In  addition  to  this,  other  advertising  matter  which  may 
come  from  indirect  advertising  is  set  up  as  an  additional 
cost  in  the  same  record,  thus  giving,  at  the  end  of  the 
month,  the  total  amount  of  advertising  utilized  by  {he  vari- 
ous departments  and  the  amount  of  space  used,  so  that  a 
statistical  record  may  be  set  up  and  a  comparison  made 
from  year  to  year. 

Discount  Records. —  In  treating  this  subject,  this  term 
is  applied  to  cash  discount  received  from  the  payments  of 
obligations  at  maturity,  other  than  negotiable  instruments. 
The  discount  question  is  one  that  runs  into  quite  large  pro- 
portions. 

There  are  many  organizations  throughout  the  country  in 
the  retail  business  that  are  satisfied  to  conduct  their  affairs 
so  that  their  wares  carry  a  sufficient  mark  up  to  cover  their 
entire  overhead,  depending  upon  the  discount  earned  to 
produce  their  profits.  The  importance  is  readily  estab- 
lished in  the  foregoing  statement  of  showing  the  necessity 
of  carrying  a  complete  record  of  discounts  earned.  Two 
methods  are  applicable.  One  is,  after  entering  the  mer- 
chandise received  in  the  invoice  register,  to  set  up  the  dis- 
count immediately  alongside  of  the  liability  incurred.  The 
other  is  to  set  up  the  discount  in  a  discount  record  at  the 


BOOKS  IN  USE 


time  that  the  discount  is  earned,  when  making  the  remit- 
tance. A  form  is  not  given  for  this  record  for  the  reason 
that  a  regular  columnar  journal  is  sufficient  for  the  pur- 
pose. The  record  that  is  set  up  of  discounts  earned  is  not 
a  substantial  figure  to  appear  in  a  general  ledger.  The 
actual  discounts  earned  at  'the  time  of  makinjj  the  remit- 
tance for  an  obligation  that  appears  in  the  cash  "Dock  are 
the  only  figures  relating  to  discount  that  should  appear  in 
the  general  ledger  and,  from  there,  on  the  Profit  and  Loss 
statement. 

"Where  the  discount  is  entered  in  a  purchase  journal  upon 
receipt  of  invoice,  several  journal  entries  are  necessary  for 
monthly  closing. 

PURCHASE  JOURNAL  RECORD 


Date 

In- 
voice 
No. 

Regis- 
ter 
No. 

Account 
Name 

DEFT.  101 

Selling 

Discount 

Cost 

• 

From  Purchase  record 

Dr.     Discounts  from  merchandise  purchase- 
Cr.     Unearned  discounts 


From  cash  book  (Posting  direct)   or  through  journal 

vouchers 
Dr.     Unearned  discount. 


70     RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

Required  Discounts. —  Perhaps  there  is  no  other  line  of 
commercial  affairs  that  would  set  up  an  account  known  as 
Required  Discounts.  The  store  may  require  a  uniform  dis- 
count to  be  earned  by  every  department,  whether  the 
department  itself  receives  credit  for  such  earned  discount, 
treated  as  an  additional  income  to  the  department,  or 
'the  discount  earned  is  simply  passed  to  the  credit  of  the 
administrative  branch  of  the  establishment.  A  specific  dis- 
count must  be  earned  by  the  departments.  Exemplifying 
this,  a  department  is  required  to  earn  a  discount  of  7  per 
cent.  The  particular  department  may  be  the  glove  depart- 
ment. The  prevailing  discount  allowed  in  the  glove  trade 
is  2  per  cent.  The  buyer  of  merchandise  cannot  influence 
the  manufacturer  to  accede  to  his  terms.  He  will  either 
add  the  difference  of  5  per  cent  to  the  cost  of  the  merchan- 
dise or,  should  the  merchandise  be  covered  by  the  discount 
of  2  per  cent  when  the  merchandise  is  received  at  the  store, 
an  additional  5  per  cent  is  charged  to  the  merchandise  and 
credited  to  the  required  discount.  The  difference  of  5  per 
cent  is  set  under  a  separate  accounting  record,  known  as 
Required  Discount. 

Storage  Record. —  All  stores  of  any  size  carry  reserve 
stock.  This  seldom  applies  to  wearing  apparel  such  as 
ladies'  outer  clothing  or  men's  outer  clothing,  though  at 
times  furs  and  overcoats  may  be  carried  on  from  one  sea- 
son to  another.  Reserve  stocks  are  those  of  underwear, 
hosiery,  house  furnishings  and  the  heavier  wares  carried 
on  in  trade  by  the  department  store,  with  the  exception  of 
style  stock. 

A  warehouse  or  storage  may  be  kept  on  the  premises. 
Or  if  the  volume  of  business  of  an  organization  is  such  that 
all  space  is  required  for  selling  purposes,  outside  ware- 
houses or  storage  buildings  will  be  used  for  such  reserve 
stocks.  To  merchandise  a  store  properly,  and  in  order  that 
an  accurate  accounting  record  be  kept,  the  perpetual  inven- 


RECORD 

|  DELIVERED  to  Department* 

i 

REMARKS  

i 

I 

! 

1 

QUANTITY  OUT 

111 

O 

cc 

1 

STO 

Record  of  Description  RECEIVED  | 

0 

— 

5 

§ 

COLOR 

DtSCRIPT- 
ION 

| 

1 

d 

1 

71 


72     RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

tory  records,  as  described  in  Form  24,  will  be  set  up, 
to  be  known  as  reserve  daily  merchandise  control.  These 
will  be  supported  by  a  storage' record,  in  which  the  detail  of 
the  various  stocks  on  hand  will  be  recorded.  Any  stocks 
removed  from  the  storage  will  be  credited  to  the  total  on 
hand  stock  to  show  a  detailed  statement  of  the  condition  of 
all  stocks  for  the  department. 

To  apply  best  a  storage  record,  any  reserve  system  will 
be  sufficient,  but  there  are  exceptions  to  this.  The  classifi- 
cation of  the  diverse  merchandise  would  have  to  be  set  up 
so  that,  at  a  glance,  a  record  will  give  the  necessary  infor- 
mation to  the  buyer  (departmental  manager)  of  the 
reserve  stocks  in  the  storage  house,  so  that  merchandise 
may  be  replenished  with  the  storage  merchandise  (see  Form 
26). 

In  addition  to  the  storage  record,  each  department  car- 
ries an  individual  record  of  stored  stocks,  applying  for 
ready  reference  the  lot  number  or  storage  number  of  the 
storage  record  and  of  value  of  such  stock. 

Office  Petty  Gash. —  Office  cash  may  be  better  known 
as  petty  cash,  and  is  generally  used  for  the  payments  of 
petty  expenditures.  Expenses  of  this  nature  must  be 
recorded  very  carefully.  Any  ruled  form  of  cash  book, 
itemizing  the  various  expenditures,  is  sufficient.  However, 
it  must  be  remembered  that  no  merchandise  should  be  paid 
for  with  office  cash,  neither  should  salaries  or  personal 
drawings  or  payments  be  withdrawn  from  the  office  cash. 
Each  payment  must  be  requisitioned  properly  by  the  man- 
ager of  a  department,  properly  countersigned  by  one 
authorized  to  do  so.  All  cash  received  must  be  indorsed  by 
the  parties  receiving  such  moneys  on  the  reverse  side  of  the 
petty,  cash  vouchers  or  requisition. 


SALES  CHECKS  AND  RETURN  CHECKS 

Sales  Checks. —  Sales  checks  of  a  department  store  or 
any  retail  establishment  represent  a  bill  of  sale  for  a  pur- 
chase made  by  a  customer.  These  sales  may  be  in  various 
forms.  They  may  represent  a  cash  sale,  charge  sale, 
C.  0.  D.  sale,  an  approval,  a  will  call,  whatever  arrange- 
ment the  customer  may  have  with  the  store  with  whom  he 
trades,  or  the  condition  upon  which  the  sale  is  made. 

These  sales  checks  are  set  up  to  coordinate  with  the  busi- 
ness, generally,  to  fit  in  with  the  volume  of  business  con- 
ducted by  the  house.  Stores,  whose  volume  of  business 
runs  into  great  proportions,  have  separate  checks  to  repre- 
sent cash  sales,  C.  0.  D.  sales,  or  charge  sales.  These  checks 
come  in  book  forms  of  50  each,  with  a  serial  number  con- 
trolling the  checks  from  1  to  50.  A  binder  or  holder  is 
readily  made  to  hold  the  3  sets  of  checks.  Then  again, 
there  are  other  organizations  that  have  one  set  of  checks  on 
which  provision  is  made  to  represent  either  the  cash  sale, 
the  charge  sale,  or  the  C.  0.  D.  sale  (see  Forms  27  and  28). 
The  setting  up  of  the  correctness  of  the  sales  record  is 
dependent  upon  the  proper  auditing  of  these  sales  checks. 
A  thorough  knowledge  of  its  entire  procedure  is  necessary 
to  obtain  a  perfect  audit. 

Rules  usually  given  to  the  salespeople  and  rigidly 
enforced  are  the  following: 

Sales  checks  must  be  written  plainly  and  distinctly. 

Omit  flourishes. 

Never  write  a  number  over  another. 

Never  write  a  name  over  another. 

Never  write  a  letter  over  another. 
73 


MXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 


vss 

D«p't  U.lte» 

Sold  by 

Am't  of  Sola 

mer 

PU^CHASCO  BY 


Coin  Ord«  No 


CUSTOMER'S  VOUCHER 


oyt 

Am't  of  SiU 

C«»h  from  CuftonMr 

Ani'l  Paid 

C.O.  D. 

FOEM   27. —  SALES    CHECKS 


SALES  CHECKS  AND  RETURN  CHECKS  75 

If  check  is  incorrect,  have  entire  check  made  void 
and  signed  by  floor  superintendent,  then  proceed  to 
make  a  new  sales  check. 

In  charge  accounts,  or  C.  O.  D.  sales,  begin  all  names 
with  the  printed  capital  letter  of  the  alphabet.  Write 
initial  in  capitals. 

If  you  are  a  purchasing  agent,  be  sure  that  you  get 
the  name  of  the  purchaser  as  well  as  the  name  of  the 
purchasing  agent. 

Always  repeat  the  address. 

Always  obtain  the  location  such  as  east,  west,  north, 
south,  for  section  of  the  city. 

"When  in  doubt  as  to  correct  spelling  of  the  name  or 
address,  ask  the  customer  to  spell  it  for  you. 

In  receiving  cash  from  customer,  always  repeat  the 
amount  received  before  entering  on  your  sales  check. 

Count  your  change  to  the  customer  after  receiving 
it  from  cashier. 

At  all  times  be  accurate. 

Never  put  a  rubber  stamp  on  either  writing  or 
numerals,  and  especially  the  address. 

Use  a  new  carbon  after  the  twenty-fifth  check  has 
been  used. 

If  a  sales  check  is  missing  from  the  sales  book, 
immediately  notify  floor  superintendent,  who  will 
notify  auditing  department. 

Cash  Sales. —  Where  the  sales  check  in  use  is  that  of 
the  combined  form  of  cash,  C.  0.  D.  or  charge,  the  word 
"  cash  "  is  represented  by  filling  in  the  space  denoting  the 
various  details  in  which  the  cash  sale  is  connected.  Cash 
sales  should  at  all  times  be  made  up  on  white  paper,  though 
this  varies  so  much  that  there  is  really  no  adequate  reason 
why  the  cash  sale  should  have  any  other  color  but  white. 
Sometimes,  colors  are  used  to  further  distinguish  one 
department  from  another  or  to  locate  one  floor  from 


76     RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

another.  But  for  the  reason  that  the  cash  is  of  such  vital 
importance  in  the  cash  auditing,  it  is  best  to  have  all  writ- 
ings on  the  white  paper. 

The  author  wishes  to  say  emphatically  that  all  sales 
checks  should  be  in  triplicate.  That  is,  a  duplicate  check 
is  given  to  the  customer  for  identification  and  claims,  the 
original  of  which  is  retained  by  the  house,  and  a  tissue 
(which  is  a  triplicate)  remains  in  the  book.  Thus,  there  is 
an  immediate  foundation  established  for  a  tracer.  When 
a  cash  sale  is  affected,  the  merchandise,  cash  and  check  are 
delivered  to  the  cashier's  desk.  "Where  a  pneumatic  tube 
system  is  used,  it  is  sent  to  the  cashier's  station.  Where  a 
cash  register  is  used,  it  is  registered  in  such  register.  Where 
no  parcel  wrapper  is  employed,  the  clerk  generally  makes 
her  own  parcel.  However,  where  a  wrapper  is  stationed, 
an  inspectress  will  compare  the  amount  of  sale  with  the 
price  marked  on  the  merchandise.  If  the  sales  check  and 
merchandise  with  its  price  ticket  correspond,  the  parcel  is 
made  up  and  returned  to  the  sales  clerk  for  the  customer. 

Well  regulated  stores  employ  the  identification  method, 
which  is  known  as  a  "  Customer's  identification."  This  is 
a  part  of  the  duplicate  check  giving  the  number  of  the  clerk, 
sales  check  number,  date,  amount  of  sale,  and  cash  received. 
After  the  sale  has  been  effected  and  the  money  received,  the 
clerk  removes  the  identification  voucher  from  the  check 
proper,  which  is  attached  by  the  perforation  method.  The 
voucher  or  receipt  is  handed  to  the  customer,  retaining  it 
until  her  package  is  delivered,  using  her  identification  slip 
to  obtain  the  package  properly  belonging  to  the  customer. 
The  parcel  wrapper  is  instructed  to  write  the  sales  clerk's 
and  check  number  on  every  package.  This  method  has 
proved  its  worth  during  the  rush  hours  in  preventing  mis- 
takes in  delivering  parcels  to  customers. 

Permitting  sales  clerks  to  pack  their  own  goods  may  save 
some  time,  and  permitting  each  clerk  to  be  her  own  cashier 


SALES  CHECKS  AXD  RETURN  CHECKS  77 

may  also  keep  the  customer  from  becoming  impatient  while 
waiting  for  change  and  parcel.  But  for  obvious  reasons 
known  to  every  department  store  man,  the  author  does  not 
recommend  this  method.  It  may  be  utilized  to  advantage 
in  such  departments  as  notions,  bakery  and  meats,  but  in 
no  other.  Though  stores  permit  gloves,  hosiery,  perfumery 
and  ribbon  departments  to  make  their  own  cash  and  do 
their  own  parcel  wrapping,  an  inspection  system  is  highly 
recommended. 

C.  0.  D.  Sales  Checks.— C.  O.  D,  sales  for  all  stores 
regardless  of  the  volume  of  business  are  at  best  not  only  an 
encumbrance,  but  a  loss  and  a  dissatisfaction  to  the  business 
and  institution  as  well  as  to  the  customer.  The  most  expen- 
sive sale  of  an  organization  is  where  the  customer  requests 
her  purchase  to  be  sent  to  her  home  C.  0.  D.  (terminology 
being,  Cash  on  Delivery). 

The  average  percentage  of  returns  of  all  C.  0.  D.  sales  is 
about  28  per  cent.  In  many  stores,  the  percentage  of 
returns  will  even  run  beyond  50  per  cent.  This  percentage 
has  increased  to  such  great  proportions,  that  the  department 
stores  throughout  the  country  have  practically  banded 
themselves  together  into  a  policy  that  C.  0.  D.  sales  will 
only  be  accepted  where  a  customer  is  known  to  the  house, 
or  to  the  coworkers  of  the  department,  or  where  a  deposit 
is  placed.  "Whether  a  customer  is  known  or  not,  no 
C.  0.  D.  sales  will  be  sent  out  of  town  unless  a  deposit  is 
made  to  conform  in  proper  proportions  to  the  amount  of 
the  sale. 

"Where  a  C.  0.  D.  sale  is  affected,  the  procedure  should  be 
the  proper  filling  in  of  the  specifications  printed  on  the  sales 
check.  "Where  the  proportions  of  the  C.  0.  D.  business  is 
large,  it  is  best  to  have  a  separate  check  plainly  printed, 
with  the  word  C.  0.  D.  as  printed  in  Form  28.  In  affecting 
a  C.  0.  D.  sale,  the  full  name  should  be  obtained.  There 
must  be  no  deviation  in  this  instance.  "When  the  customer 


78     RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

gives  the  address  in  care  of  another  party,  both  names  in 
full  should  be  secured.  The  duplicate  sales  checks  are  sent 
to  the  cashier 's  desk  and  the  cashier  in  turn  will  have  them 
delivered  to  the  main  office.  The  original  sales  check  and 
the  merchandise  are  sent  to  the  C.  0.  D.  parcel  desk  sta- 
tion. By  the  term  C.  0.  D.  parcel  desk,  the  author  refers 
to  a  station  set  up  to  receive  all  packages  or  merchandise 
which  are  covered  by  C.  0.  D.  sale.  At  this  station  all 
goods  are  wrapped  and  the  check  is  either  pasted  to  the 
package  or  pasted  on  a  card,  which  is  tied  to  the  parcel,  and 
from  that  station  sent  to  the  delivery  department  for  dis- 
tribution. The  duplicate 'check  which  is  sent  to  the  office 
every  hour  is  immediately  recorded  on  a  C.  0.  D.  record 
(see  C.  0.  D.  audit).  The  C.  0.  D.  sales  check  just  men- 
tioned is  that  which  is  applicable  to  the  department  store 
exclusively. 

There  are  many  organizations  throughout  the  country. 
In  fact,  almost  every  line  of  commodity  has  reached  the 
stage  of  specialization,  so  much  so  that  establishments  have 
sprung  up  in  the  last  decade  which  have  specialized  in  the 
selling  of  one  particular  classification  of  merchandise.  Such 
an  organization  is  known  as  a  specialty  house.  It  may  be 
men's  clothing,  women's  clothing,  millinery,  wearing 
apparel  of  any  description  —  whether  infants',  juveniles' 
or  adults  —  hardware,  furniture,  in  fact,  any  conceivable 
commodity  carried  on  in  trade,  and  used  by  society.  Where 
a  wearing  apparel  organization  is  conducted,  a  workroom 
where  alterations  are  made  is  conducted,  completing  the 
specialization  of  the  establishment. 

Where  a  C.  0.  D.  sale  is  made  in  the  specialty  house,  the 
sales  checks,  which  ordinarily,  in  the  department  store,  are 
pasted  on  a  card  or  on  a  package,  will  be  pasted  to  the 
reverse  side  of  Form  48,  which  is  made  up  of  a  manilla  card. 
This  form  is  known  as  a  C.  0.  D.  shipping  tag,  and  sales 
check,  and  is  also  used  for  cash  sale.  The  date  on  this  must 


C.  O.  D, 


'DEP'T 


Address . 


Folio. 


533 


ClerL 


Am't,  $T 


C,  O.  D. 


•SO2-3O4-3OS  W    LAFArrm  ET, 
SI1-313-310-317    W.  LEXINGTON  ST. 


Oata_ 


.191-. 


Folio 


M_ 

533 


Clerk 


DESCRIPTION 


Total 


FORM  28. —  c.  o.  D.  SALES  CHECK 
79 


80     RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

be  written  plainly,  with  the  description  in  the  form  of  a 
bill,  so  that  the  tag  will  remain  attached  to  the  garment  and 
remain  attached  during  the  process  of  alteration,  up  to  the 
time  that  the  merchandise  is  ready  to  be  packed  in  the  con- 
tainer to  be  forwarded  to  the  customer  who  has  made  the 
purchase.  The  stub  of  this  tag  is  a  record  to  be  used  in 
the  alteration  books  and  card  file  of  the  alteration  or  work- 
room. In  these  records  proper  space  is  set  up  to  signify 
whether  such  alteration  is  a  C.  0.  D.  sale,  a  cash  sale  or  a 
charge  sale,  having  in  mind  that  a  verification  of  the  open 
C.  0.  D.  can  be  traced  either  in  the  workroom  or  delivery 
department. 

Charge  Sales  Checks. —  A  considerable  amount  of  dif- 
ficulty arises  at  times  in  properly  controlling  the  sales  for 
which  the  customer  carries  a  charge  account.  At  the  incep- 
tion of  the  charge  sale,  all  information,  such  as  is  printed, 
with  an  allotted  space  on  the  sales  check,  must  be  filled  in. 
The  clerk  affecting  the  sale  will  communicate  with  the  credit  • 
department  in  order  to  ascertain  whether  the  credit  of  the 
customer  making  the  charge  sale  is  in  good  standing.  This 
information  is  obtained  from  the  credit  department,  either 
by  the  sales  person  or  by  clerks  who  are  known  as  0.  K. 
clerks  or  credit  clerks. 

There  are  various  devices  used,  in  which  these  checks  are 
0.  K.'d  or  approved  for  delivery  by  the  credit  department. 
Various  mechanical  devices  are  made  that  authorize  credits, 
going  extensively  into  the  mechanical  or  telegraphic  house 
systems.  "When  the  credit  department  sanctions  a  sale,  the 
sales  check  is  completed.  The  original  check  is  given  to 
the  cashier.  The  duplicate  check  is  given  to  the  customer 
with  the  merchandise,  and  the  cashier's  voucher,  which  is 
an  addition  on  the  foot  of  the  check  as  shown  in  Form  27, 
is  sent  to  the  office  for  a  triplicate  check  on  the  charge  sale. 
After  completing  the  audit  of  the  charge  sales  check  or 
vouchers  in  the  auditing  department,  these  checks  will  be 


SALES  CHECKS  AND  RETURN  CHECKS  81 

posted  through  the  accounts  receivable  ledgers,  where  they 
will  find  their  way  to  the  proper  account  in  the  ledger,  and 
a  statement  will  be  rendered  monthly. 

Charge  sales  may  be  collected  hourly  and  an  immediate 
audit  set  up,  which  is  reconciled  the  next  day.  These 
hourly  audits  are  for  the  express  purpose  of  enabling  the 
accounts  receivable  ledger  clerks  to  post  sales  charges  the 
same  day  the  purchases  are  made. 

Will  Call  Checks. —  The  will  call  check  is  an  excellent 
check  to  be  adopted  where  a  deposit.is  made  on  a  purchase 
and  the  customer  wishes  the  goods  held  for  a  future  date. 
Most  houses  use  the  C.  0.  D.  check  for  this  purpose,  which 
is  very  wrong,  as  it  permits  an  excellent  opening  for  mis- 
takes and  dishonesty.  C.  0.  D.  checks  should  never  be 
used  where  a  deposit  on  merchandise  is  made  until  called 
for. 

A  will  call  check  is  made  up  in  triplicate  form  and  is  con- 
siderably smaller  than  the  other  checks  in  use.  The  top 
check  with  cash  deposit  must  go  to  the  cashier,  who  treats 
this  top  check  as  a  regular  cash  sale.  A  tissue  duplicate 
remains  in  the  book  and  a  triplicate  of  hard  manilla  paper 
is  attached  to  the  merchandise  and  set  aside  until  called 
for.  "When  the  original  check  reaches  the  office,  a  will  call 
record  is  established  in  a  will  call  record  book  and  for  all 
goods  not  called  for  after  a  given  period  the  customer  will 
be  notified  and  merchandise  replaced  in  stock,  after  a  lim- 
ited time  allowed  the  customer  to  pay  for  the  purchase.  The 
deposit  will  be  forfeited  and  the  will  call  balance  credited 
by  forfeit,  or  whatever  circumstances  may  be  connected 
therewith  should  the  customer  fail  to  comply  with  request 
to  call  for  merchandise  set  aside. 

The  will  call  check  is  further  extended  for  the  purpose 
of  a  partial  payment  plan  of  purchase.  While  the  store  is 
not  selling  its  wares  on  the  installment  plan,  it  is  custom- 
ary with  houses  to  extend  this  privilege  when  specifically 


82     KETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

requested  by  a  customer.  In  instances  of  this  kind,  any 
installment  method  of  record  will  be  kept,  but  for  every 
payment  made  by  the  customer,  a  cash  sale  check  must  be 
made.  The  reason  for  this  is  because  the  original  payment 
of  the  will  call  sale  has  been  considered  a  cash  sale.  There- 
fore, all  future  payments  must  likewise  be  considered  as 
cash  sales.  In  such  establishments,  where  C.  0.  D.  checks 
are  used  as  "  "Will  Calls,"  additional  payments  must  be 
credited  to  open  C.  0.  D.'s. 

Club  Plan  Sales. —  The  term  club  plan  is  a  camou- 
flage for  installment  sales.  The  department  store  is  not  an 
installment  house,  and  to  offer  pianos,  players  or  furniture 
on  installments  would  not  be  in  keeping  with  the  store 
policy,  hence  the  term  club  plan.  All  club  plan  sales,  as 
a  rule,  are  subject  to  a  chattel  mortgage.  The  accounting 
is  similar  to  the  will  call  system  on  a  broader  plan,  with  a 
ledger  account  controlled  by  the  credit  department. 

Transfer  Checks. —  This  form  of  check  is  a  convenient 
sales  and  burden  saver.  It  is  a  means  of  giving  the  cus- 
tomer quick  service  and  at  the  same  time  of  encouraging 
trade.  A  transfer  sales  check  may  either  be  a  charge  sale, 
a  paid  sale  or  a  C.  0.  D.  sale.  The  object  is  to  enable  the 
customer  to  buy  in  any  number  of  departments  without 
delay,  and  to  have  all  her  purchases  delivered,  where  con- 
venient to  do  so,  in  one  package  or  in  one  shipment.  If, 
after  the  purchases  have  been  made,  the  customer  wishes 
all  her  purchases  delivered  to  another  party,  such  address 
must  be  given  to  the  clerk  in  charge  of  the  transfer  desk. 

The  Transfer  Desk. —  The  transfer  desk  is  a  central 
station  where  all  parcels  bought  on  a  transfer  check  are 
delivered.  At  this  transfer  desk  a  cashier  is  generally  sta- 
tioned. Here  the  entire  transfer  sales  check  is  paid,  and  all 
packages  are  checked  and  disposed  of  in  accordance  with 
the  customer's  desires. 

There  are  several  forms  of  transfer  checks.     One  may  be 


SALES  CHECKS  AXD  RETURN  CHECKS  83 

on  a  manilla  card  with  pasters  attached,  generally  running 
from  ten  to  fifteen  pasters  to  each  transfer  check. 

The  procedure  with  the  paster  transfer  card  should  be 
as  follows: 

The  customer  arriving  at  the  store  will  proceed  to  the 
transfer  desk  where  she  will  obtain  a  card  for  the  purpose. 
Each  card  is  registered  and  the  date  recorded.  The  time 
of  the  day  when  the  card  was  given  to  the  customer  must 
appear  on  the  check.  Specific  information  is  requested  as  to 
whether  the  merchandise  will  be  charged,  paid  or  .sent 
C.  0.  D.r  which  information  must  be  indicated  on  the  trans- 
fer or  shipping  directions,  unless  otherwise  changed  at  the 
time  the  customer  has  completed  all  her  purchases. 

It  is  customary  in  all  stores  where  parcels  are  sent  to 
the  transfer  desk  that  such  merchandise  should  be  held  for 
three  days  only.  Unless  this  merchandise  is  called  for  at 
the  end  of  that  period,  the  store  will  consider  it  its  privi- 
lege to  return  the  merchandise  to  stock. 

The  customer,  after  obtaining  the  card,  will  proceed  from 
one  department  to  another  to  make  her  purchases.  She 
presents  her  card  to  the  sales  person  who  has  effected  the 
sale,  which  clerk  will  enter  in  his  sales  the  number,  which  is 
given  to  all  sales  people  employed  in  department  stores  for 
convenience  in  accounting  and  statistical  records.  The 
sales  person  will  also  record  the  department  employed  in,  a 
description  in  one  or  two  words  of  the  articles  sold,  and  the 
amount  in  dollars  and  cents.  A  paster  or  sticker  such  as 
shown  in  Form  29  will  be  detached  and  pasted  to  the  parcel, 
which  will  be  sent  immediately  to  the  transfer  desk  to  await 
the  call  of  the  customer  making  the  purchase.  The  sales 
person  must  not  for  any  reason  delay  the  sending  of  the 
transfer  purchase  to  the  transfer  desk  immediately  after 
the  customer  departs. 

Another  form  of  transfer  check  is  shown  in  Forms  30  to 
34.  In  this  instance,  the  pasters  are  not  used,  but  a  regular 


Transfe:  N9        193     V 
Chg.  to 


Date 


Iff" 


Address 


Sent  to 


Address 


Purchased  by 


If  purchases  are  to  be  taken  with,  use  Pink    Transfer 

TO  SALESPERSON 

Whoa  issuing  a  . transfer  card  aslt  customer  il  g-< ><..!«  arc  i.>  be  charged.  If  »«. 
write  the  name  ofpiprsod  to  whom  charged  and  tlie  purchaser'*  name  on  IraaiUr. 
Mfd  and  s»les  checks,  also  place  on  transfer  card  the  date  t>l  sale. 

.Customer's  Instructions 

TbU  sheet  contains  Shipping  Directions.  «nd  must  not  lie  taVen  from  the  store. 
When  through  purchailng,  present  thu  card  at  t'anMrr  dr  sU  in  t>aserr>ent.  ii  goodr 
••re  to  be  taken  with.  Jf  goods  are  to  be  sent,  tins  card  van  be  left  at  P.xch-tnpfi 
Desks  and  Bureail  of  Inforni.mon  on  first  fl  or  (.»  <eilleincni. 

All  purchases  on  ffiiji  Card  will  be  returned  to  siock  unless  Card  is  presented  at 
transfer  desk,  within  3  days. 


C.hnrgn   . 

Paid 



r.  on. 

Settled  by           .Time  Stilled                  .                 — 

FORM  29. —  TRANSFER  CHECK 


84 


Amount       C.  O.  D. 


Bate H??.3?*. -I <— '•- 

Name _ ..._ •  . ^ 

Place 

r      .21 

State 


Care  of 


Settlement 

?/- 

Charge  to 

Place 
Purchased  by 


Date 


refund  of 
•  with'"1"**  V*y* 


FOR  SEPARATE  SHIPMENT 


A.  Send  to 
Place 

B. Send  to 

Place 

C.  Send  to 
^^  Place 
.P.  Send  to 
•Place 


FORM  30. —  TRANSFER  CHECK 


85 


REMARKS 

SEC. 

SALES 

Check 

ARTICLES 

AMOUNTS 

2 



.  ,  

4_ 
5_ 
6 

...      . 

7 

.._  

8 

9 
10 

12 



U         21 













Received  Payment,  ,.      "                     .  .                              Tot»l 

FORM  31. TRANSFER  CHECK 

(Keverse  Side  of  Form  30) 


Date 

it 
Name 

Place 

County 

State* 

Care  of 


How  Bent 


U        31 


Settlement 
By 

Charge  to 
Place 
rarchaaedby- 


Sen9 


B...  S-ndtO 
Place 

C.  ,  Send  to 
Place 

P.    Send  ta 


DUPLICATE 


Date 


Time 


FOR  SEPARATE/ SHIPMENT 


S'OBM    32. —  TBANSFEB   CHECK 


87 


u 


Received  Payment,  Jj  ',!" 


FORM  33. —  TRANSFER  CHECK 
(Reverse  Side  of  Form  32) 


88 


Transfer  Issue  Slip 


FORM  34. —  TBAXSFEB  CHECK 


90     RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

sales  check  is  made  out,  which  sales  check  is  attached  to  the 
merchandise  and  sent  to  the  transfer  station,  as  described 
on  the  transfer  card.  It  is  a  matter  of  preference  which 
method  is  preferable. 

A  store 's  problem  is  the  customer 's  service.  The  first  thing 
that  is  in  the  mind  of  a  department  store  manager,  or  owner 
or  trained  executive,  is  CUSTOMER  FIRST.  Whether  the  cus- 
tomer is  right  or  wrong  in  the  statement  she  makes,  or 
whether  her  demands  of  the  firm  are  entirely  unreasonable, 
the  well  trained  department  store  executive  immediately 
thinks  of  the  customer  first.  Invariably  she  must  be  given 
the  benefit  of  the  doubt.  Even  though,  using  the  vernacu- 
lar, she  is  "  dead  wrong,"  she  is  still  right.  Having  the 
circumstances  in  mind,  the  only  feature  of  a  transfer  check 
is  the  reconciling  of  her  parcels  and  the  sales  check  after 
the  customer  had  completed  her  purchases.  Where  a  store 
goes  very  extensively  into  the  use  of  transfer  checks,  at  cer- 
tain hours  of  the  day,  the  transfer  desk  will  be  congested. 
Many  clerks  may  be  employed  at  this  station  for  the  reason 
that  while  the  customer  is  kept  waiting  until  her  turn  for 
the  reconciliation  of  the  transfer  check,  her  patience  becom- 
ing exhausted,  the  result  is  that  the  good  effect  for  which 
the  transfer  check  is  intended  is  lost,  and  a  bitter  complaint 
is  lodged  with  the  manager  with  the  abundance  of  reasons 
behind  it,  such  as  only  a  woman  shopper  is  capable  of  dis- 
pensing. 

Accommodation  Check. —  The  address  label  of  an  ordi- 
nary salescheck  is  quite  sufficient  to  answer  the  purpose  for 
this  form  of  check.  It  is  used  where  a  customer,  having 
made  a  purchase,  leaves  the  department  and  later,  woman- 
like, decides  she  prefers  to  have  it  sent.  The  accommoda- 
tion check  is  used,  since  a  well  systematized  organization 
will  not  permit  a  parcel  of  any  description  to  be  delivered 
without  a  sales  check.  It  may  also  be  used  for  customers 
other  than  those  who  may  enter  a  store  and  request  deliv- 


SALES  CHECKS  AND  RETURN  CHECKS 


91 


ery  of  a  parcel.  In  such  instances,  a  nominal  charge  of  ten. 
cents  or  more  is  made.  All  accommodation  checks  must  be 
approved  by  the  floor  superintendent. 

Approval  Sales  Checks. —  "When  merchandise  is  pur- 
chased on  approval  by  a  customer  the  same  procedure  as 
that  of  a  charge  sale  must  be  adhered  to. 

Inter-Department  Sales  Checks. —  Inter-department 
transfer  is  a  form  of  sales  check  that  is  used  in  various 


INTER  DEPARTMENTAL  TRANSFER 


To  DEPT. 


FOBM   35. —  INTEB-DEPABTMENT   SALES   CHECKS 

stores  under  different  methods.  Its  intention  is  to  cover 
merchandise  transferred  from  one  department  to  another. 
That  is,  department  No.  1  will  sell  to  department  No.  2  a 
certain  quantity  of  merchandise.  The  cost  should  not  enter 
into  such  a  transfer  to  the  department  doing  the  transfer- 
ring, for  the  reason  that  the  department  that  is  doing  the 
transferring  is  given  credit  as  if  it  were  a  sale.  The 
department  receiving  the  merchandise  is  charged  as  if  it 
were  making  the  purchase.  The  difference  between  the 
mark  up  of  the  department  doing  the  transferring  and  the 


92     EETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

new  selling  price  as  given  to  the  merchandise  by  the  depart- 
ment receiving  it,  would  either  be  a  mark  down  or  a  mark 
up.  This  difference  must  be  transferred  properly  to  the 
daily  departmental  inventory  record  in  order  that  a  cor- 
rect control  is  set  up.  The  record  is  kept  of  conditions  as 
they  actually  exist  (see  Form  35).  If  a  mark  down  is  con- 
sidered in  making  such  transfer,  the  department  making 
the  transfer  must  be  charged  with  the  reduction  in  selling 
price. 

Cash  Refunds. —  Cash  refunds  refer  to  the  return  of 
cash  given  to  a  customer  for  the  return  of  merchandise  from 
a  purchase  made.  It  is  customary  for  the  customer  making 
a  request  for  the  refund  of  the  amount  of  money  paid  for 
the  merchandise  she  is  offering  for  return,  to  identify  prop- 
erly the  merchandise  by  the  price  ticket  on  the  gar- 
ment. Or,  most  important  of  all,  it  is  necessary  for  her  to 
present  the  sales  check  along  with  merchandise  in  order  to 
obtain  the  credit. 

The  percentage  of  returns  on  cash  sales  is  generally  the 
smallest  of  the  three  classifications  of  sales ;  that  is,  of  cash 
refunds  or  returns  for  cash  sales,  charge  sales,  and  C.  0.  D. 
sales.  These  cash  refunds  are  issued  at  a  central  desk  on 
each  floor  of  the  store,  known  as  an  Exchange  Desfe.  The 
merchandise  must  immediately  be  sent  to  the  department 
where  it  is  acknowledged  as  having  been  received  in  stock. 
Generally  a  person  in  authority  authorizes  making  the 
refund  to  the  customer.  The  exchange  clerk  should  put  her 
name  and  number  on  every  refund  check  and  the  full 
description  of  the  article  returned.  The  original  slip  will 
go  to  the  customer,  who  will  either  use  it  for  the  payment 
of  merchandise  or  obtain  the  cash  to  cover  the  cash  refund, 
or  credit  voucher.  The  duplicate  of  this  refund  will  be 
sent  every  hour  to  the  general  office,  where  it  is  passed  to 
the  auditing  department  and  a  verification  made  with  the 
original  in  order  to  properly  check  the  cash  refunds  for  the 


ftmn  123A    2500  sets 


CASH  REFUND  SLIP 

Date 


N9         508 


Customer's  Name. 
Address        .. 


Article* 


Reason  (or 


by. 


Amount  of  Refund. 

Rec'd  in  Stock 

by .  (signature)  _ 


Dollars 


.Authorized   by. 


FORM  36. —  CASH  REFUND  SLIP 


CASH    REFtJNO 


A     3503 

Date, 


ARTICLES  RETURNED 


FORM  37. —  CASH  BEFTJND 
93 


94     RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

day.  The  tissue  remains  in  the  book  for  reference  (Forms 
36  and  37). 

Cash  Refund  Slips. —  Another  form  for  a  cash  refund 
is  shown  in  Form  36.  The  customer  wishing  to  make  an 
exchange  will  find  the  exchange  desk  along  side  of  the 
cashier's  desk.  Having  made  known  the  customer's  desire, 
the  clerk  behind  the  exchange  desk  will  call  the  buyer  or 
her  assistant,  or  the  floor  superintendent,  who  will  promptly 
interview  the  customer. 

A  cash  refund  can  only  be  issued  upon  the  authorization 
of  the  floor  superintendent,  the  buyer  or  the  first  assistant 
buyer.  Its  issuance  must  be  signified  by  signature  in  writ- 
ing upon  the  space  of  the  cash  refund  slip  noted  ' '  Author- 
ized by. ' '  The  department  letter  and  date  must  be  written 
plainly,  as  must  the  customer's  full  name  and  address,  and 
a  detailed  description  giving  the  style,  number,  description 
of  the  merchandise.  The  selling  price  must  be  clearly 
specified,  along  with  the  reasons  why  the  refund  has  been 
requested.  The  number  of  the  sales  coworker  having 
effected  the  sale  must  appear  on  this  refund  slip.  The 
amount  of  the  refund  must  also  be  written  out  in  letters  as 
well  as  in  numerals,  and  in  ink. 

No  cash  refund  will  be  accepted  unless  the  signature 
appears  on  the  slip,  showing  that  the  merchandise  was 
received  in  stock  by  either  the  head  of  the  stock  or  the 
assistant  in  charge  of  the  proper  keeping  of  the  stock  in 
the  department  to  which  the  merchandise  is  to  be  returned. 
Cash  refund  slips  will  be  held  by  the  cashier. 

This  check  is  made  in  duplicate  form,  the  yellow  check 
is  to  be  removed  from  the  book,  and  the  pink  check  is  to 
remain  in  the  book.  These  books  are  to  alternate,  to  be  used 
every  other  day. 

The  original  customer's  sales  check  is  to  be  attached  to 
pink  cash  refund  slip.  The  customer  must  sign  her  name 
and  address  on  reverse  side  of  yellow  cash  refund  slip. 


SALES  CHECKS  AND  RETURN  CHECKS  95 

The  office  will  at  various  intervals  report  the  diverse  reason 
for  merchandise  returns,  as  given  by  customers,  appearing 
on  pink  credit  slips  to  the  merchandising  office. 

Merchandise  Exchange. —  Cash  refunds  are  not  always 
granted  upon  request  of  a  customer.  A  very  liberal  policy 
and,  in  the  opinion  of  the  author,  the  one  most  successful 
in  holding  patrons  and  ultimately  increasing  the  volume  of 
sales,  is  to  refund  immediately,  when  a  refund  is  demanded. 
However,  where  the  policy  of  an  organization  is  not  of  the 
liberal  kind  and  certain  merchandise  can  only  be  exchanged 
for  other  articles,  the  merchandise  exchange  check  is  issued. 
The  procedure  is  the  same  as  cash  refunds,  with  the  excep- 
tion that  the  exchange  check  is  used  to  apply  to  the  pay- 
ment of  a  new  sale  (Form  38). 

Charge  Credits. —  Charge  credits  are  such  credits  as 
are  issued  for  the  return  of  merchandise  to  customers  with 
whom  a  charge  account  is  carried  on.  They  are  further 
distinguished  from  a  cash  refund  by  the  difference  in  the 
color.  Charge  credits  generally  are  of  pink  paper  and 
come  in  triplicate  form.  The  pink  check  goes  to  the  cus- 
tomer ;  the  duplicate  in  blue,  is  sent  to  the  general  office  at 
the  time  of  issue.  The  tissue  remains  in  the  book  for  refer- 
ence. Unlike  the  cash  refund,  very  seldom  is  mer- 
chandise accompanied  by  the  sales  check.  Very  often  the 
price  ticket  will  be  missing  from  merchandise  returned  by 
charge  customers. 

That  privileges  of  a  charge  account  are  very  often  abused 
by  customers  is  not  a  mere  thought,  but  an  actual  occurrence 
in  almost  every  community. 

The  procedure  of  having  the  merchandise  delivered  to 
the  department  it  belongs  to  must  be  acknowledged  by  the 
party  receiving  the  merchandise  —  generally  a  person 
known  as  head  of  stcck,  and  authorized  by  an  authoritative 
person  (Form  39). 


96  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

form  M3-.50  Bls-5-19  \TO  Q  0 1 

MERCHANDISE  EXCHANGE     W  * 


Dept- 


.Date 


Customer's  Name. 
-Address 


rticles 


Reason  Tor  Return. 

Sold  by 

jAmount  of  Return— 

,.<ec'd  In  Stock 

jy  {signature) 


-Dollars 


.  Authorized- 


FORM  38. —  MERCHANDISE  EXCHANGE 

Charge  Credits  Procedure. —  A  customer  wishing  to 
make  an  exchange  will  find  the  exchange  desk  conveniently 
located  on  the  floor.  Having  made  known  her  desire,  the 
clerk  at  the  exchange  desk  will  call  the  attention  of  the 
buyer,  or  her  assistant,  or  the  floor  superintendent,  who 
will  promptly  interview  the  customer. 

A  charge  credit  can  only  be  issued  upon  the  authoriza- 
tion of  the  floor  superintendent,  the  buyer  or  buyer's  first 
assistant.  Its  issuance  must  be  indicated  by  the  signature 
written  upon  the  space  allotted  on  the  credit  slip.  The 
authorizer  having  ascertained  the  authenticity  of  a  charge 
credit  to  be  put  into  effect,  should  feel  incumbent  to  obtain, 
whenever  possible,  the  customer's  original  sales  check,  and 
copy  identically  the  information  contained  on  the  sales- 
check  upon  the  charge  credit  slip.  Where  saleschecks  are 


97 


not  available,  the  following  information  must  be  ascertained 
and  written  upon  credit  slips :  The  date  when  the  request 
for  credit  is  made,  to  whom  the  merchandise  was  originally 
charged  and  the  address,  by  whom  the  merchandise  was 
purchased  and  address,  the  coin  number  should  appear  in 
the  space  allotted  for  coin  or  order  number,  or  if  a  purchas- 
ing agent's  charge,  the  order  number  of  the  purchasing 
agent  should  be  written  plainly  in  the  space  headed  by  the 
words  "  Coin  order  No."  The  date  when  the  merchandise 
was  originally  sold  is  to  be  placed  in  the  column  headed 
by  the  words  "  Date  purchased."  The  saleslady's  num- 
ber must  appear  as  well  as  the  department  letter.  The  rea- 
son for  credit  must  be  written  plainly  on  each  slip.  No 
credits  should  be  acceptable  unless  the  reason  for  return  is 
mentioned  in  the  space  allotted  for  that  purpose. 

In  order  that  a  charge  credit  (credit  slip)  be  valid,  not 
alone  must  the  signature  appear  of  that  person  who  is  privi- 
leged to  authorize  the  issuance  of  the  credit,  but  the  signa- 
ture must  appear  of  the  head  of  stock,  or  the  assistant  in 
charge  of  the  stock,  such  signature  being  written  in  the 
space  headed  by  the  words  ' '  Received  in  stock. ' ' 

The  body  of  the  check  must  contain  the  style  number  of 
the  merchandise  offered  for  credit,  the  description  of  the 
merchandise  and  the  amount  of  the  sale.  By  the  term 
description,  one  or  two  words  identifying  the  classification 
is  sufficient,  as  Ladies'  waist,  Ladies'  shoes,  etc. 

The  white  check  is  to  be  sent  to  the  ledger  clerks  in  the 
accounts  receivable  department  of  the  general  office.  From 
this  credit  slip,  the  ledger  clerks,  after  setting  up  their 
ledger  controls  and  giving  the  proper  division  for  their 
daily  audit,  will  post  to  the  ledger  account  to  whom  the 
credit  has  been  issued.  The  white  credit  slip  marked 
"  Auditor's  voucher  "  will  be  sent  to  the  chief  auditor  of 
the  auditing  department  by  the  ledger  clerks  in  order  that 
they  may  set  up  a  proper  audit  of  charge  credits  against 


98     RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

the  day's  business,  official  control  to  the  general  ledger, 
comparisons  to  be  made  with  accounts  receivable  depart- 
ment. 

The  tissue  remains  in  the  book  and  is  audited  by  the 
auditors  with  the  white  credit  slip  stamped  "  Auditor's 
voucher."  This  is  done  in  order  to  account  for  every 
charge  credit  issued,  and  to  control  the  charge  credits  so 
that  a  perfect  check  will  be  kept  to  the  extent  that  the 
ledger  clerks  of  the  accounts  receivable  department  will 
receive  every  charge  credit  slip  that  is  issued.  They  will 
be  enabled  to  have  every  charge  credit  slip  that  is  issued 
upon  their  ledgers.  The  tissue  remains  in  the  book,  and 
must  not  at  any  time  be  removed. 

The  yellow  or  manilla  copy,  which  is  obtained  by  the 
use  of  a  carbon  paper,  will  be  sent  to  the  clerk  in  the 
department  who  is  conducting  merchandise  records  for  the 
control  of  the  departmental  stocks.  "Where  this  is  not  the 
case,  the  manilla  copy  will  be  sent  to  the  statistical  depart- 
ment of  the  general  office  which  controls  the  merchandise 
fluctuations.  There  awaits  the  proper  reconciliation  of  the 
total  amount  of  the  manilla  slips  for  such  charge  credits  as 
may  appear  on  the  daily  reconciliation  sheet  as  set  up  by 
the  auditing  department. 

The  yellow  credit  slip  marked  "  Auditor's  voucher  "  giv- 
ing the  sales  person's  number,  the  department,  and  the 
amount  of  the  credit  issued,  is  given  to  the  customer  as  an 
identification  that  a  credit  has  been  issued  in  her  favor, 
and  is  entered  upon  the  ledger  accounts  record. 

These  charge  credits  slips  will  be  alternated,  that  is, 
books  that  are  in  use  Monday,  "Wednesday  and  Friday  will 
be  replaced  by  other  books  which  will  be  used  Tuesday, 
Thursday  and  Saturday,  giving  the  auditing  department 
one  day's  time  to  check  back  the  tissues  remaining  in  the 
book  for  auditing  purposes. 


?       2154 


fcnnNo.  I   JObks   4-19 


CREDIT  SLIP 


CHARGE  TO 


PURCHASED  BY 


Coin  Order  No. 


CREDIT   SLIP 


N9       2154 


AUDITOR'S 
VOUCHER 


RECEIVED  IN  STOCK 


Date  Sold 

Dep't 

Date .. 


FORM  39. —  CHABGE  CREDITS 

CHARGE    CREDIT 


B     3328 


Sale.   No.. 


Credit  to  _ 
Address 


Ret'd  fey_ 


Address 


ARTICLES  RETURNED 


-Total 


FORM  40. —  CHARGE  CREDITS 
99 


100  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

The  original  customer 's  sales  check  is  to  be  attached  to 
the  white  credit  slip,  when  obtainable. 

The  office  will  at  various  intervals  report  the  diverse  rea- 
sons for  merchandise  returns  as  given  by  charge  custom- 
ers appearing  on  credit  slips  (see  Form  39). 

Purchasing  Agents. —  In  almost  every  community  there 
are  purchasing  agents  who  have  an  account  with  a  depart- 
ment store  and  receive  special  discounts  for  purchases  they 
make.  These  purchasing  agents  have  a  list  of  customers 
whom  they  will  direct  to  make  their  purchases  at  a  store 
with  whom  the  purchasing  agent  has  a  charge  account.  In 
such  instances,  where  a  return  is  made,  the  credit  will  have 
to  be  given  to  the  purchasing  agent  and  the  name  of  the 
person  who  is  making  the  return  specified  on  the  charge 
credit. 

Purchasing  Agents  Orders. —  Authorization  of  a  charge 
to  a  purchasing  agent  by  a  person  making  a  purchase  must 
be  upon  a  signed  store  order  or  requisition  by  the  agent 
covering  the  value  of  the  purchase.  No  charges  should  be 
made  against  an  agent,  unless  an  order  authorizing  the 
charge  is  presented.  After  the  order  reaches  the  office,  it 
should  be  cancelled  so  that  it  may  not  find  its  way  to  a 
department  again  and  be  used  a  second  time. 

Charge  Credits  Ledger  Postings. —  The  ledger  clerks 
in  posting  charge  credits  must  exercise  special  caution  with 
charge  accounts.  Each  ledger  clerk  must  refer  to  the 
original  charge  in  her  ledger  for  verification,  so  that  the 
amount  indicated  on  the  charge  credit  will  correspond  with 
the  amount  of  the  original  charge.  Perhaps  it  may  not 
seem  necessary  to  direct  attention  to  this  item,  but  the 
author  has  found  that  the  greatest  number  of  mistakes  in 
charge  ledgers  occur  from  this  source.  In  fact,  unnecessary 
1  losses  are  produced  through  the  neglect  of  ledger  clerks  in 
making  these  verifications. 


SALES  CHECKS  AXD  RETURN  CHECKS  101 

C.  0.  D.  Credits. —  The  same  procedure  that  applies  to 
charge  credits  is  applicable  to  C.  0.  D.  credits.  A  different 
color  check,  however,  should  discriminate  the  Form  40 
with  the  words  C.  0.  D.  credit  printed  thereon. 

Outstanding  Cash  Credits. —  A  record  is  kept  of  the 
total  amount  of  cash  refund  checks  that  are  issued  imme- 
diately after  the  daily  audit  has  been  completed,  made  as 
a  liability  of  the  store.  Its  offset  credit  would  be  those  cash 
refunds  which  are  turned  in  by  the  various  cashiers  who 
have  paid  the  cash  or  accepted  the  cash  refund  as  a  part 
payment  or  a  payment  for  new  purchase.  The  difference 
is  termed  Outstanding  Cash  Credits,  showing  a  liability  for 
credits  for  which  the  customer  has  not  cashed  the  credit 
voucher  issued.  Generally  this  form  should  be  followed  up 
in  the  same  manner  as  the  issue  of  bank  checks,  as  if  it  were 
an  order  on  any  banking  institution  making  a  reconcilia- 
tion of  such  outstanding  cash  credits  by  checking  up  re- 
funds issued,  unclaimed  and  not  cleared. 

Mail  Order  Credits. —  A  department  store  issues  a  con- 
siderable amount  of  credits.  Such  credits  will  be  used  the 
same  day  or  during  the  current  month  of  issue  by  the  cus- 
tomer. This,  however,  doesn't  hold  true  with  the  case  of 
the  mail  order  house,  which  must  keep  a  record  of  out- 
standing cash  credits  as  if  it  were  a  banking  problem. 
Credits  in  mail  order  houses  are  known  as  merchandise 
credit  vouchers.  Some  mail  order  houses  will  not  issue  any 
credit  vouchers  at  all,  but  will  make  a  cash  refund  imme- 
diately. The  object  of  this  is  to  eliminate  the  extensive 
bookkeeping  required  to  control  the  large  number  of  credit 
vouchers  that  are  issued.  However,  from  a  financial  view 
point,  the  mail  order  house  will  lose  all  ^ the  direct  benefits 
of  the  use  of  the  cash,  which  otherwise  it  would  have  been 
obliged  to  return. 

Statistics  show  that  89  per  cent  of  all  merchandise  credit 
vouchers  issued  by  mail  order  houses  are  applied  to  re-orders 


102  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

with  additional  cash.  It  will  readily  be  seen  from  this  that 
though  the  prevailing  percentage  of  merchandise  credit 
vouchers  issued  from  mail  order  houses  averages  89  per 
cent,  the  actual  refunds  average  about  11  per  cent. 

In  the  issuance  of  such  credits  each  credit  will  be  num- 
bered in  consecutive  order.  The  record  book  will  be  kept 
in  which  the  number  of  the  voucher,  date  of  issue,  name  and 
address  of  customer,  and  the  amounts  are  recorded.  As 
these  credit  vouchers  are  returned  by  customers  for  credit 
through  the  mail  cage,  they  will  in  due  time  be  sent  to  the 
general  accounting  department,  which  will  immediately 
check  up  the  merchandise  credit  vouchers  record.  A  daily 
record  in  the  form  of  a  report  will  show  the  outstanding 
cash  credits.  This  same  form  is  an  excellent  outstanding 
cash  credit  record,  and  should  be  in  use  in  every  depart- 
ment store  issuing  credit  refunds. 

Exchanges. —  The  exchange  checks  apply  to  those 
checks  where  a  customer  exchanges  merchandise  which  she 
bought  at  some  prior  date,  or  on  the  same  day,  for  other 
merchandise  of  the  same  price,  and  from  the  same  stock. 
If  she  buys  merchandise  from  one  department  and  wants 
to  exchange  it  for  some  other  merchandise  in  some  other 
department  for  the  same  price,  the  exchange  desk  cannot 
be  used.  In  instances  of  that  kind  a  credit  must  be  issued, 
and  that  credit  used  as  a  part  payment  for  the  merchandise 
which  she  secures  in  another  department.  For  example, 
suppose  a  suit  is  purchased,  size  36,  and  it  is  found  to  be 
entirely  too  large.  The  customer  comes  back  to  the  store 
and  says,  "  I  want  size  18,  Misses,"  and  it  is  the  same 
price.  The  sales  clerk  will  then  take  a  sales  check,  make 
the  check  as  if  it  were  a  regular  sale,  write  the  word 
* '  exchange  ' '  under  it,  and  specify  the  style  number  for  the 
garment. 

The  buyer,  department  manager  or  floor  superintendent 
in  charge  of  the  department  0.  K.'s  the  sales  check,  which 
check  is  known  as  an  Exchange  check. 


SALES  CHECKS  AXD  RETURN  CHECKS       103 

The  fact  that  the  exchange  is  simply  a  difference  in  size 
or  a  difference  in  color  of  the  same  class  of  merchandise, 
does  not  permit  the  sales  person  to  merely  exchange  the 
garment  for  the  customer  without  making  a  record  of  it. 
It  is  incumbent  upon  the  sales  person  to  make  a  record 
of  every  sale,  because  if  she  is  permitted  to  simply  make 
the  exchange  without  the  making  of  a  sales  record,  fraudu- 
lent transactions  in  sales  must  ultimately  follow.- 

The  word  "  exchange  "  is  often  misapplied,  and  to  an 
auditing  department  not  well  versed  in  the  interpretation  of 
the  various  checks,  imperfect  audits  will  result.  Depart- 
ments sometimes  interpret  the  word  exchange  as  if  it  were 
a  listing  of  all  returns,  whether  cash,  charges,  C.  0.  D.  or 
will  calls.  They  then  deduct  the  total  from  the  gross  sales 
in  order  to  obtain  the  net  results  for  daily  sales. 

Part  Payments. —  These  checks  must  not  be  interpreted 
as  being  an  installment  affair  of  purchasing  merchandise 
by  customers.  Part  payments  would  be  applied  to  such 
checks  where  a  will  call  sale  is  affected.  That  is,  a  pur- 
chase having  been  made  by  a  customer,  a  payment  on 
account  will  be  made,  the  merchandise  set  aside,  to  use  the 
familiar  term  of  the  department  store  —  a  "  Lay  away  ' ' — 
until  such  time  as  may  be  arranged  between  the  customer 
and  the  sales  person  when  the  entire  payment  of  the  pur- 
chase it  to  be  met. 

A  part  payment  purchase  which  is  to  be  arranged  by 
payments  being  made  on  the  installment  plan,  should  be 
sanctioned  by  the  floor  superintendent,  buyer  or  assistant 
buyer.  There  are  instances  where  a  piano  department  or 
furniture  department  will  sell  these  articles  on  part  pay- 
ment. This  would  be  known  as  a  club  plan.  However,  for 
the  better  control  of  the  sales  and  in  order  that  such  pay- 
ments will  be  made,  it  is  treated  as  a  cash  sale,  unless  a 
club  plan  of  payment  had  originally  been  set  up  as  a  charge 
sale. 


104  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 


Part  Paid  C.  0.  D. —  The  only  deviation  from  part  pay- 
ment plan  would  refer  to  the  deposit  placed  on  a  C.  0.  D. 
sale.  Transactions  of  this  nature  are  known  as  part  paid 
C.  0.  D.  "Where  no  deposit  is  made  on  a  C.  0.  D.  it  is 
called  a"  Straight  C.  0.  D." 

Part  Paid  and  Charge  Credits  Combined. —  Perhaps  the 
•worse  classification  of  credit  is  where  a  customer  having  a 
charge  account  makes  a  payment  on  a  purchase  and  has  the 
balance  of  her  purchase  charged  to  her  account.  All  inter- 


Date 

Salesperson  Name                               JVb. 

Dep't.                              Scr/a  I  No. 

NO 

C  A  S  H 

*.     C.O.D. 

CHARGE 

P.  MS 

I 

2 

5 

4 

5 

,i*i-r/  • 

6 

7 

8 

9 

10 

11 

12 

13 

' 

14 

jj-^—  "-^ 

•*—-  ^. 

FOEM    41. —  SALES    CHECK    TALLY 


ft 

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«  I 


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r  M.I   i 


i      i 

1  !  !.  I  11  i  I  i  I  !     I 


U   j   I' 


ill! 


L_l  r  I   • 


JJJ.iiu  i 


V 

8 

* 


M 

es 

s 


105 


106  EETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

ested  parties  in  the  general  office  should  be  on  the  alert 
with  this  form  of  credit  for  both  errors  and  fraudulent 
entries.  The  original  ledger  posting  will  be 

Dr.     The  account  with  full  amount  of  sale. 
Cr.     The  account  with  amount  of  cash  paid. 

"When  the  return  of  merchandise  is  made,  a  credit  should 
be  issued  for  the  amount  of  the  sale.  Or,  if  the  customer 
desires  the  return  of  her  cash  payment,  two  credits  will  be 
issued  —  a  charge  credit  for  the  amount  of  sale  less  cash 
paid;  and  a  cash  refund  to  apply  to  charge  account  for 
the  actual  cash  paid  on  the  transaction. 

The  Tally. —  The  tally  card,  sometimes  known  as  an 
index,  is  a  card  upon  which  the  number  of  the  sales  checks 
and  the  classification  of  the  sale  is  recorded  by  the  sales 
person  immediately  after  making  her  sales  check  (see  Forma 
41  and  42). 

These  tally  cards  generally  run  from  1  to  50,  with  25 
•  checks  to  each  side  of  the  tally  card.  A  new  tally  must  be 
made  every  day.  If  more  than  50  sales  checks  are  used 
during  the  day,  additional  tallies,  as  many  as  may  be 
required,  may  be  made.  These  tallies  must  be  dated  with 
the  sales  check,  sales  person's  name,  number  and  the  depart- 
ment in  which  the  sales  person  is  employed.  Each  sales 
book  consists  of  50  checks  controlled  by  serial  numbers. 
These  serial  numbers  must  appear  on  each  tally.  The 
classification  of  the  sale,  whether  cash,  C.  0.  D.,  or  charges, 
must  be  indicated  in  the  column  provided  for  that  purpose. 
At  the  end  of  the  day,  the  total  amount  of  the  sales  with 
each  classification  must  be  added  by  the  sales  clerk,  and 
turned  in  to  the  manager  of  the  department  (buyer)  by  the 
sales  person  before  leaving  her  department. 

The  column  provided  for  P.  M.'s  is  for  such  premiums 
earned  for  the  sale  of  merchandise  to  which  a  premium  is 
attached. 


SALES  CHECKS  AXD  RETURN  CHECKS       107 

Envelope  form  of  tally  is  that  which  is  shown  in  Form 
42,  which  is  an  envelope  containing  the  tissues  or  a 
triplicate  copy  of  the  sales  checks  removed  from  the  book. 
These  are  sent  to  the  general  office  at  the  close  of  the  day's 
business. 

Sales  persons  must  be  instructed  to  make  sure  that  the 
first  check  beginning  the  day's  business  must  be  the  next 
consecutive  check  following  the  last  sales  check  used  the 
previous  day.  This  is  to  conform  with  the  auditing,  which 
is  checked  up  in  the  Auditing  department  daily.  U.  S. 
Tax  on  taxable  merchandise  is  recorded  on  the  tally  along 
side  of  the  sales  check  number  upon  which  a  tax  was  paid 
by  the  customer. 


CHAPTER  IV 

AUDITING 

The  usual  interpretation  of  Auditing  conveys  the  under- 
standing that  an  examination  is  made  as  to  the  correctness 
of  any  particular  kind  of  work  appertaining  to  all  or  any 
part  of  the  accounting  system.  The  department  store  main- 
tains an  auditing  department  at  a  considerable  expense  for 
the  express  purpose  of  the  daily  auditing  of  sales  checks, 
regardless  of  their  classification,  to  verify  the  correctness  of 
the  sales  and  to  keep  a  perfect  check  of  the  cash  receipts, 
and  refunds  of  the  organization. 

CASH  SALES  CHECKS  AUDIT 

Assorting. —  All  cash  sales  checks  are  collected  hourly 
from  the  various  cashiers  stationed  throughout  the  entire 
establishment  and  deposited  with  the  auditor-in-chief  in  the 
general  office.  "Where  a  pneumatic  tube  system  is  used, 
sales  checks  will  be  collected  from  this  center  and  turned 
over  to  the  auditor-in-chief.  A  cabinet  is  provided  in  the 
form  of  pigeon  holes,  each  compartment  representing  a 
department.  A  set  of  girls  is  appointed  to  sort  all  the 
checks  which  are  turned  over  to  them  by  the  auditor-in- 
chief.  This  assortment  begins  directly  after  the  auditor- 
in-chief  receives  the  cash  checks.  The  following  morning 
these  cash  checks  are  further  assorted,  according  to  the 
sales  checks  made  by  the  various  sales  persons.  Still 
another  assortment  is  made  of  the  sales  check  by  their  serial 
numbers. 

At  the  completion  of  this  assortment,  the  auditing  depart- 
ment will  have  each  sales  person's  sales  checks  made  the 

108 


AUDITING  109 

previous  day  according  to  serial  number  in  consecutive 
running  numbers.  The  cash  checks  that  were  made  by  the 
individual  departments  are  segregated. 

Missing  Checks. —  All  assortments  of  checks  must 
coordinate  with  that  of  the  C.  0.  D.  and  charges.  It  will, 
therefore,  be  found  that  after  an  assortment  of  the  cash 
sales  checks  has  been  made,  these  checks  which  do  not  run 
in  consecutive  order  will  show  checks  missing. 

The  first  step  would  be  to  find  the  missing  check  in  the 
auditing  department,  either  by  looking  in  checks  amongst 
the  charge  sales,  or  the  C.  O.  D.  sales.  In  the  event  that 
the  missing  check  cannot  be  found  in  the  auditing  depart- 
ment, a  search  must  be  instituted  immediately  for  its  loca- 
tion. 

Sometimes  it  may  be  in  the  ' '  will  call  ' '  department.  It 
might  be  a  check  that  has  been  made  void.  It  may  show 
some  discrepancy  with  the  cashier  or  it  may  be  held  in  some 
department.  In  fact,  a  search  may  reveal  various  causes 
for  the  missing  check,  but  there  is  no  excuse  whatever  for 
the  checks  not  being  accounted  for.  It  is  imperative  that 
the  check  be  found.  Of  course,  there  is  always  a  last  resort 
of  locating  the  checks,  consisting  of  referring  to  the 
tissue  or  triplicate  check.  But  the  author  has  found  that 
very  often,  when  a  sales  check  is  missing,  that  either  the 
tissue  is  indistinct  or  the  tissue  itself  is  missing.  It  there- 
fore behooves  the  auditing  department  to  locate  and  keep 
in  perfect  control  all  sales  checks  that  are  used  for  each 
day's  business.  A  record  should  be  kept  of  each  clerk's 
first  sales  check  used  at  the  beginning  of  the  day,  and  the 
number  of  the  last  sales  check  utilized  for  recording  a  sale, 
in  order  that  the  first  and  last  checks  are  accounted  for  in 
setting  up  the  daily  missing  list. 

A  special  auditor  is  appointed  and  known  as  a  "  tracer," 
to  be  acquainted  with  every  department  and  section  of  the 
house  system.  The  tracer's  duty  is  to  locate  every  sales 


TRACER 


Dm           Dcpt    Una 

Sold  bv 

Ami    Stle 

How  Sold 

1 

Charge  u> 


Series  no. 


Voucher 

Series  No 


D.tt 

Sold  by 

Dqx 

Ami    Silt 

Cub  Customer 

Ami    Ptid 

C    O    D. 

INFORMATION 


43. —  TBACEB   CHECK 


110 


AUDITING  111 

check.  No  excuse  must  be  accepted  for  not  accomplishing 
a  tracer  that  is  once  begun. 

Tracer  Check. —  The  moment  a  check  is  found  missing, 
a  tracer  check  is  made  (as  shown  in  Form  43).  The 
details  are  obtained  from  the  tissue  or  envelope  tally.  The 
tracer  auditor  will  make  her  investigations,  or,  to  use  the 
vernacular,  ' '  Run  down  the  missing  check  ' '  and  record  all 
information  obtained  upon  the  space  allotted  for  this  pur- 
pose on  the  tracer  check.  Upon  completing  the  investiga- 
tion, her  report  will  be  turned  over  to  the  auditor-in-chief 
to  close  the  search. 

The  Adding  of  Checks. —  After  accomplishing  the 
assortment  of  all  checks,  the  tally  will  be  checked  back  to 
account  for  each  sale.  The  cash  will  then  be  added  and  the 
total  of  all  the  cash  sales  for  the  day  verified  with  the  cash 
receipts  turned  in  to  the  general  cashier.  At  the  same 
time  that  the  checks  are  being  compared  with  the  tally 
sheets,  the  auditor  must  audit  each  check  for  additions  and 
multiplications.  Any  errors  detected  must  be  reported 
immediately  to  the  chief  auditor,  who  will  then  follow  the 
course  of  policy  that  the  house  may  pursue  in  regard  to 
blunders. 

Blunders. —  This  is  another  term  for  errors  made  by 
sales  people.  Many  stores  pursue  a  policy  of  charging 
from  five  cents  to  twenty-five  cents  for  all  blunders  made 
by  sales  help.  This  is  rather  detrimental  to  an  organiza- 
tion. If  a  clerk  is  not  efficient  in  her  work,  she  must  ba 
taught  to  be  so.  The  good  will  of  coworkers  must  at  no 
time  be  discouraged. 

Cashiers'  Vouchers. —  Some  auditing  systems  may  not 
make  an  hourly  collection  of  sales  checks,  but  permit  the 
cashier  to  turn  in  her  checks  at  the  close  of  business.  These 
checks  will  be  added,  and  whatever  the  cash  receipts  of 
the'se  checks  amount  to  must  be  an  equivalent  of  the  cash 
turned  in  to  the  chief  cashier  by  the  cashiers  of  the  depart- 


112  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

ments.  However,  a  considerable  amount  of  time  is  lost  by 
waiting  until  the  following  day  to  assort  the  checks. 
Unless  a  large  force  is  employed,  the  object  of  completing 
the  daily  audit  of  the  previous  day's  work  would  be 
defeated.  The  cashier  will  retain  the  duplicate  of  the  cus- 
tomer's voucher,  sometimes  known  as  the  "  Customer's 
identification  of  sale. ' '  This  duplicate  voucher  represents  the 
actual  cash  received  by  the  cashier,  and  also  represents  the 
amount  of  the  sale  of  the  upper  part  of  the  check.  These 
vouchers  are  turned  in  at  the  end  of  the  day  by  the  cashier. 
Such  vouchers  are  assorted  to  account  for  any  missing 
vouchers,  and  then  totaled  to  account  for  the  amount  of 
cash  received  by  each  cashier.  These  totals  must  be  recon- 
ciled with  the  cash  turned  in  to  the  chief  cashier  at  the  end 
of  the  previous  day. 

Refunds. —  Refund  checks  may  be  cashed  by  any 
cashier  in  an  establishment.  Some  organizations  may  have 
a  central  station  for  such  refunds.  This  does  not  neces- 
sarily prove  good  efficiency,  nor  is  there  any  special  result 
obtained  from  setting  up  a  station  for  this  express  purpose. 

A  cashier  who  cashes  a  refund  or  accepts  it  as  a  part  pay- 
ment of  merchandise  or  as  a  full  payment  of  merchandise, 
will  consider  such  refund  as  if  it  were  actual  cash.  The 
total  amount  of  the  cashier's  vouchers  for  the  day  should 
be  an  equivalent  to  the  amount  of  the  actual  cash  plus  the 
amount  of  cash  refunds  paid  out.  The  reconciliation  of 
her  cash  for  the  day  should  be  all  sales  checks,  less  refunds 
checks. 

Comparison  with  Chief  Cashier. —  Aside  from  the  audit 
of  the  individual  checks  as  heretofore  described,  at  the 
close  of  the  day  the  cashier  will  set  up  a  recapitulation  of 
the  amount  of  cash  which  she  turns  in  to  the  chief  cashier. 
This  is  the  first  check  of  the  cashier.  At  the  same  time,  a 
receipt  goes  to  the  sub-cashiers  for  the  amount  of  actual 
cash  turned  in  at  the  end  of  the  day  (see  Form  44) . 


AUDITING 

1 


113 


RCJJ,  Slip  of    ___— _^____ 
Date No.  C400_ 


DCI»T.  «EC. 


Total 


REG.  AMIS. 


Error  Slip- 


Cash 


O.K. 

SH. 

•  sus. 

Total  Slip  of 
Date 


Note*  . 
Silver  . 
Gold.  . 
Checks 
Refund* 
Receipt* 


Total 


let.  I.L. 


N  Ml  k*  tteri  «r 
TM  will  k*  chart^  »Um  all  itarUlM. 


FOBM   44. —  STATION   CASHIEB  BEPOBTS 

Cash  Auditor's  Summary. —  A  summary  of  each  sales 
check  by  departments  is  set  up  on  a  form  described 
in  Form  46,  in  which  the  date  of  the  audit,  sales  clerk  num- 
ber, the  serial  number  of  the  book  in  use,  and  the  checks 
number,  at  the  beginning  and  ending  of  the  day,  are 
recorded.  From  this  tally,  the  amount  of  the  cash  sales, 
charges  or  C.  0.  D.  's  will  be  entered,  and  any  charges  that 
are  made  for  alterations  or  extra  charges  for  any  special 
order  work,  those  in  a  measure,  made  foreign  to  the  express 
purpose  to  which  the  store  may  be  established,  will  be 
entered  in  a  column  provided  for  the  purpose. 

The  sales  of  each  clerk  will  then  be  added  crosswise  in 


114  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

order  to  obtain  the  total  amount  of  a  sales  person's  sales 
for  the  day.  The  totals  of  all  sales  person's  sales  will  be 
the  total  amount  of  the  sales. 

The  total  sales  for  cash,  C.  0.  D.'s  and  charges,  with  the 
corresponding   credits   and  refunds   and  other   data,   are 


FOEM   45. —  SUMMAET   OF   DAILY   SALES 


transferred  to  a  final  house  record  or  "  summary  of  sales 
record  "  as  found  on  Form  45.  All  entries  from  this  sheet 
are  transferred  to  the  department  sales  record  book.  The 
auditor-in-chief  must  also  set  up  the  sales  portion  of  the 
accounts  receivable  control  for  final  posting  to  the  general 
ledger.  These  controls  must  correspond  to  the  control  as 
set  up  by  the  ledger  clerks  of  the  accounts  receivable 
ledgers. 

Where  government  taxes  prevail,  the  space  for  remarks 


AUDITING  115 

will  indicate  the  department,  amount  of  net  sales,  and  tax 
collected. 

Over  and  Short. —  Very  often  a  reconciliation  of  the 
cash  sales  and  the  cash  turned  in  to  the  chief  cashier  will 
balance.  More  often,  there  will  be  a  difference,  either 
shortage  or  "  over."  It  seems  impossible  that  such  things 
should  exist.  Still,  consideration  must  be  given  to  the  fact 
that  many  thousands  of  sales  occur  during  a  day's 
business,  and  that  mistakes  are  inevitable.  Care  and  cau- 
tion prevail  at  all  times,  but  differences  cannot  be  obviated. 

A  listing  is  made  in  the  general  cash  book  of  the  overages 
and  shortages.  At  the  end  of  the  month,  postings  are  made 
to  the  general  ledger  account,  known  as  Over  and  Short. 
At  the  end  of  the  fiscal  year  they  are  charged  off  to  the 
P.  and  L.  (profit  and  loss)  account. 

The  over  or  short  accounting,  sometimes  referred  to  as 
surplus  or  deficit  of  daily  audits,  is  the  result  of  making 
wrong  change,  lost  cash,  sales  checks  still  unaccounted  for, 
or  dishonesty.  Reluctance  should  be  paramount  in  the 
thoughts  of  an  executive  examining  the  summary  sheets,  to 
even  infer  dishonesty,  where  a  shortage  is  shown  in  the  cash 
audit.  Missing  cash  sales  checks  and  irregularities  have 
often  been  discovered,  but  caution  is  advisable  for  all  inves- 
tigations. 

C.  0.  D.  Checks  Audit.—  The  audit  of  C.  O.  D.  checks 
takes  on  an  entirely  different  aspect  from  the  audit  of  cash 
sales  checks.  Cognizance  must  be  taken  of  the  fact  that 
part  of  the  C.  0.  D.  sales  is  allied  to  the  cash  sales  audit. 
An  instance  in  which  such  sales  checks  become  a  part  of  the 
cash  sales  check  audit  is  seen  in  those  C.  0.  D.  sales  where 
a  part  payment  has  been  made.  In  such  an  instance,  the 
amount  of  cash  paid  is  added  to  the  day's  audit  as  so  much 
additional  cash  sales. 

A  distinction  is  made  in  C.  0.  D.  checks  where  a  cus- 
tomer makes  a  deposit  on  her  purchase  and  wishes  the  mer- 


116  KETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

chandise  sent  C.  0.  D.  This  form  of  C.  0.  D.  check  will 
be  known  as  PART  PAID  C.  0.  D.  "Where  a  C.  0.  D.  sale 
is  effected,  and  the  customer  has  made  no  payments  what- 
ever, nor  applied  any  credits  that  she  may  be  holding 
against  the  house,  such  sales  will  be  known  as  a  STRAIGHT 
C.  0.  D. 


FOBM   46. —  ATOIT   SUMMARY 


C.  0.  D.  at  the  Source. —  Assume  that  a  C.  0,  D.  trans- 
action has  been  made  in  any  department  of  the  organiza- 
tion. Promptly  upon  the  customer's  leaving  the  depart- 
ment, the  C.  0.  D.  will  be  sent  to  the  auditing  department, 
where  a  C.  0.  D.  number  is  applied  to  that  sale.  Whether 
a  department  store  carries  a  separate  check  known  as 
C.  0.  D.  check  or  whether  the  sales  check  in  use  is  a  com- 
bination of  either  cash  sales,  C.  0.  D.  sale,  or  charge  sales 


AUDITING  117 

check,  it  is  incumbent  upon  the  sales  person  (and  this  rule 
must  be  enforced  rigidly  by  the  manager  of  the  department 
or  manager  of  the  floor)  to  see  that  the  C.  0.  D.  check  is 
sent  to  the  auditing  department  to  receive  the  next  open 

INSTRUCTIONS 

Get  list  of  Sales  Clerks  in  the  Department 

Check  tallies  with  the  list  to  account  for  each  clerk. 

Check  tissues  with  tally  to  correct  any  errors. 

Before  putting  tissues  back  in  the  tally,  count  the  number  of  garments 
that  have  been  sold  and  put  the  amount  on  the  tallyfin  blue  pencil. 

Audit  Sales  Clerks  checks  with  her  tally  ^ 

Add  cash  on  tally        »  p^  the  amount  of  cash,  charges  and 
C.  O.  D.'s  on  the  tally  in  blue  pencil, 


These  totals  must  be  correct. 

There  should  be  no  missing  cash  checks  or  C.  0.  D.  checks. 

Missing  charges  may  be  held  hi  the  Credit  Department 

When  a  Charge  is  missing  enter  in  book  the  "Sales  Clerk's  number,  the 
series  number  of  check,  name  of  agent,  name  of  article,  and  the  price  of  the 
article.  If  the  cEeck  is  O.  K.  the  following  day,  Oi  K.  the  entry  in  the  book 
and  pass  through"  with  the  charged  checks.  If  any  cash  or  C.  O.  D.  check  is 
missing  locate  it  the  same  day.  Find  cash  voucher  for  cash  check  or  in- 
quire at  the  Inspectresses'  desk  about  the  C.  O.  D.  check.  If  not  located, 
inquire  Delivery  Department  and  Alteration  Room.  When  finished  with 
the  auditing  and  adding,  copy  the  amounts  that  are  on  the  tallies,  oo  this 
sheet 

Balance  this  sheet,  file  away  cash  checks,  pass  charge  checks  and 
C.  0.  D.  checks  with  this  sheet  to  the  Auditor-in-Chief. 

Be  careful  of  missing  checks.    Be  on  the  lookout  for  missing  charges 

Remember 

You  are  examining  important  records. 

When  in  doubt  about  anything  ask  the  Auditor-in-Chief. 

Never  take  anything  for  granted. 

You  must  be  positive  your  examination  of  this  audit  is  correct  beyond 
a  question  of  dQoot 

Accuracy,  defined,  means  exactness,  to  do  with  care,  without  mistakes. 

FORM  47.  —  AUDIT  STJMMAEY 
(Reverse  Side  of  Form  46) 


118  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

C.    0.    D.   number.     A    clerk   is   specially    employed    for 
C.  0.  D.  transactions  in  the  auditing  department. 

Upon  the  arrival  of  the  C.  0.  D.  sales  check  at  the  audi- 
tor's department  (for  a  number)  the  check  will  be  regis- 


0  EN  r»  e Y  f AS  COr  W  ESfc  M  E 


Dept. 


O.D.  A  39146 


In    case  of    Error 

C.  AMOUNT 

or  Exchange, 
return     this     card 

o. 

Intact 

D. 

TO  COLLECT 

Depl 


If  this  pacKarc  I*  returned 
tn»  ron»on  therefor  mutt 
toe  written  In  margin  bolcw 


A39146 


Reason 


O.  AMOUNT 

O.       TO 

D.  COLLECT 


SALES  NO. 


DATE 
SHIPPED 


DATE 
RETURNED 


THIS    STUB     IS    TO    BE     DETACHED     BY    THE    DRIVER    AND     RETURNED 
WITH  AMOUNT  OP  CASH  COLLECTED  TO  THE  C.  O.  D.  CASHIER. 

FOEif   48. —  C.   O.   D.   PASTE   CARD 


AUDITING 


119 


tered  on  a  C.  0.  D.  register,  Form  49,  giving  the  next  con- 
secutive number,  the  clerk's  number  effecting  the  sale,  the 
department,  the  name  and  address  of  the  customer,  and  the 
amount  of  the  C.  0.  D.  to  be  collected;  also  the  time  that 
the  C.  0.  D.  check  arrived  at  the  auditing  office.  This  sales 
check  with  the  C.  0.  D.  number  will  be  returned  to  the 
sales  person  in  the  department  whence  it  came.  That  sales 
person  will  attach  the  C.  0.  D.  check  to  the  merchandise 


C.O.D  Register 


FOKM   49. —  C.   O.  D.  BEGISTEB  FOB  DELIYEBY  DEPABTMEKT  OB  OFFICE 

and  in  turn  will  either  be  put  in  parcel  form  by  the  depart- 
ment wrapper,  or  shipping  department,  and  the  C.  0.  D. 
sales  check  either  pasted  to  the  package  or  pasted  to  a 
manilla  card  with  a  string  attached  to  such  card,  which  will 
then  be  termed  a  String  Ticket.  This  ticket  is  to  be 
attached  to  the  parcel.  It  is  then  ready  to  be  distributed 
by  the  delivery  department  to  the  route  to  which  it  belongs, 
and  to  the  proper  driver. 

The  delivery  department  must  register  all  C.  0.  D.'s  on 
a  separate  delivery  sheet,  known  as  a  C.  0.  D.  delivery 
sheet  (see  Form  50). 


120 


AUDITING 


121 


C.  0.  D.  Customer's  Record. —  At  the  time  that  a 
C.  0.  D.  check  is  sent  to  the  auditing  department  to  be 
registered  for  a  C.  0.  D.  number,  the  registrar  will  also 
fill  in  a  C.  0.  D.  card  which  is  kept  in  a  file,  alphabetically 
arranged  or  numerically  arranged.  On  this  card  the  name 
and  address  of  the  customer,  and  in  care  of  whom  the 
package  is  delivered,  will  be  mentioned.  The  check  number, 
the  department,  the  clerk's  number,  the  amount  of  the  sale, 


C.O.D. 


No.. 


Name 


Address . 

Care  of  _ 


FOBM  51. —  c.  o.  D.  CUSTOMEE'S  BECOBD 


and  the  date  of  the  sale  are  also  given.  In  some  organiza- 
tions a  central  station  in  the  store  or  on  each  floor  is  main- 
tained. At  this  station  the  registration  sheets  are  made, 
also  the  cards  kept.  The  object  is  to  set  up  a  record  of 
all  customers  who  are  in  the  habit  of  purchasing  from  the 
store  C.  0.  D.'s.  Should  the  C.  0.  D.  be-  refused  when 
delivered  the  return,  as  shown  on  the  delivery  sheet,  will 
be  recorded  on  this  card,  giving  the  date  of  the  merchan- 
dise being  returned  to  stock.  If  a  reason  is  given  for  the 


122  EETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

refusal  of  the  merchandise,  this  reason  is  recorded  on  the 
card.  The  prevailing  reason  will  be  what  is  known  as 
D.  W.  (don't  want). 

Should  a  second  C.  0.  D.  be  sent  to  the  customer  and 
returned  with  the  same  comment,  when  a  third  C.  0.  D. 
sale  is  effected,  the  management  will  be  notified  that  the 
customer  is  one  who  habitually  purchases  C.  0.  D.'s  and 
refuses  to  accept  them.  Disposition  is  then  made  of  the 
package  in  accordance  with  the  judgment  of  the  manage- 
ment. 

C.  0.  D.  Ledger. —  The  C.  O.  D.'s  having  been  regis- 
tered and  the  individual  customer's  record  having  been 
established,  a  C.  0.  D.  ledger  clerk  in  the  delivery  depart- 
ment will  record  in  a  C.  0.  D.  record  book  the  time  when 
the  C.  0.  D.  package  has  been  placed  in  the  delivery 
department  for  routing,  the  date  sold,  and  the  department 
from  whence  it  was  sold,  the  clerk's  number,  the  C.  0.  D. 
number,  the  name  and  address  of  the  customer,  with  the 
date  shipped  from  the  department,  the  amount  of  the  sale, 
and,  if  a  part  payment,  the  amount  of  such  payment;  also 
filling  in  the  column  provided  for  the  C.  0.  D.  to  be  col- 
lected. This  is  shown  on  Form  8. 

Promptly  upon  the  driver's  return  of  the  C.  0.  D.  deliv- 
ery sheet,  this  ledger  will  be  checked,  showing  the  amount 
paid  or  whether  the  merchandise  has  been  returned  to  stock. 
It  is  necessary  that  the  reader  thoroughly  understand  this 
procedure  before  entering  into  the  details  of  the  audit,  as 
it  is  essential  that  the  complete  cycle  of  the  C.  O.  D.  trans- 
action be  comprehensible  before  the  auditors  can  proceed 
with  the  audit  of  C.  O.  D.  sales. 

0.  0.  D.  Sales  Checks  Audit. —  The  foregoing  descrip- 
tion of  the  various  methods  of  procedure  that  the  C.  0.  D. 
sale  takes  into  effect  is  followed  by  the  result  that  the  dupli- 
cate of  the  sales  check  is  received  in  the  Auditing  depart- 
ment. Here  is  followed  the  same  procedure  of  assortment 


Clerk 

c.  o.  D. 
CASH 


8601 


SHIPPING  TAG 


DATE__. _.... _ 

M_ ; 

ARTICLE  |  PRICE,  ETC. 

ALTERATION 
EXAMINED  BY  Total 

Date  Shipped  _ _ 

COUPON  No. 
{[  DATE 

In  .  ™  . . 


STYLE  NO.  ARTICLE  PRICE 


ALTERATION 


Total 


FOBM   52. —  C.   O.    D.    CHECK   AND   SUPPLY  TAG 
123 


124  EETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

by  serial  number,  generally  known  as  book  number;  also 
of  taking  the  consecutive  numbers  of  the  checks  contained 
in  each  book  to  allow  for  missing  checks,  in  the  same  man- 
ner as  cash  sales  were  handled,  of  segregating  these 
C.  0.  D.  checks  by  departments  and  then  summarizing  the 
amount  of  the  C.  0.  D.  sales  by  diverse  departments  in 
order  to  obtain  departmental  sales.  The  audit  of  all  of 
which  is  enumerated  in  order  to  obtain  the  C.  0.  D. 
sales  for  the  day.  The  listing  of  the  sales  by  clerk  num- 
bers and  departments  is  on  Forms  46  and  47.  A  control 
for  the  C.  0.  D.  ledger  is  set  up  from  Form  45  for  the  debit 
charges  to  this  account. 

Dr.  C.  0.  D.  account  with  sales. 

Cr.  C.  0.  D.  account  part  payments. 

Cr.  C.  0.  D.  account  cash  collections. 

Cr.  C.  0.  D.  account  with  returns. 

Charge  Sales  Check  Audit. —  Charge  sales  are  entirely 
different  from  either  cash  or  C.  O.  D.,  inasmuch  as  the  mer- 
chandise purchased  by  the  charge  customer  is  either  taken 
with  her  or  left  for  delivery  at  her  residence.  The  general 
procedure  is  that  of  opening  an  account  in  the  Credit 
department  in  the  same  manner  as  prescribed  by  any  Credit 
department  of  a  wholesale  or  a  manufacturing  organiza- 
tion, with  the  exception  that  individual  customers  may  not 
have  a  commercial  rating.  Then  the  result  is  that  private 
investigations  are  necessary  to  determine  upon  the  line  of 
credit  allowed  to  the  customer.  The  credit  department  will 
then  set  up  a  record  of  all  customers  and,  by  a  card  system, 
maintain  a  record  for  quick  information  as  to  the  credit 
standing  of  that  charge  customer  —  whether  she  be  a  delin- 
quent account  or  thoroughly  responsible  for  her  purchases, 
or  whatever  other  information  is  necessary  to  determine 
upon  the  line  of  credit. 

There  are  several  devices  in  use.     One  may  be  a  house 


AUDITING  125 

telephone  system,  where  many  telephones  are  conveniently 
placed  in  each  department  and  connected  with  the  credit 
office  in  order  to  telephone  the  credit  department  to  ascer- 
tain whether  a  charge  can  be  passed  upon. 

In  the  smaller  retail  organizations,  card  indexes  are  main- 
tained in  the  various  departments  for  the  sales  person's 
information  in  waiting  upon  the  trade  of  a  charge  account. 

Having  passed  upon  the  credit,  with  the  charge  sale  now 
effective,  the  duplicate  of  the  sales  check  is  collected  hourly 
and  deposited  in  the  auditing  department.  These  charge- 
checks  are  assorted  by  the  department  serial  numbers  and 
the  number  of  the  checks  are  reconciled  along  with  C.  0.  D. 
checks  and  cash  checks  in  order  to  account  for  all  sales 
checks  during  the  course  of  the  day's  business,  and  to  set 
up  a  record  of  missing  checks.  A  list  of  missing  checks  is 
then  given  to  the  house  tracer  of  the  Auditing  department, 
who  will  locate  and  account  for  such  checks  in  order  to 
complete  properly  the  day's  audit. 

Having  set  up  a  charge  sales  record  by  departments,  to 
warrant  its  correctness  a  verification  is  made  of  the  exten- 
sions and  additions  of  the  sales  checks.  The  voucher 
attached  to  each  check  is  passed  on  to  the  auditing  depart- 
ment by  the  accounts  receivable  department. 

In  many  department  stores  there  is  a  class  of  business 
carried  on  by  what  are  known  as  Purchasing  Agents.  The 
manner  in  which  these  Purchasing  Agents  carry  on  their 
trade  varies  in  many  respects.  The  only  interest  that  the 
department  store  has  in  these  Purchasing  Agents  is  to  the 
extent  where  such  agents  issue  an  order  on  the  department 
store  to  sell  or  deliver  merchandise  to  a  second  person,  who 
will  be  the  customer  of  the  Purchasing  Agent. 

These  are  known  as  Store  orders.  Where  a  charge  sale 
is  effective  on  a  store  order  from  the  purchasing  agent,  that 
store  order  must  be  attached  to  the  sales  check.  These  store 
orders  are  further  verified  with  the  sales  check  in  the 


126   RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

Accounts  Receivable  Department  and  the  total  amount  of 
the  charge  sales  is  listed  by  departments  on  the  summary 
of  sales  record.  The  individual  bookkeepers  controlling 
Ledgers  will  enumerate  the  total  amount  of  the  sales  posted 
in  their  ledgers  under  the  letter  of  the  alphabet  by  which 
the  ledger  is  known.  The  total  of  such  sales  is  then  added 
to  their  individual  control  for  trial  balance  purposes,  which 
must  agree  with  the  total  charge  sales  as  concluded  for  the 
day  by  the  auditing  department.  This  gives  a  double  check 
and  audit  of  all  charge  sales. 

A  charge  sale  may  occur  and  for  diverse  reasons  may  be 
held  up  by  the  credit  department.  The  selling  departments 
will  record  the  sale  on  their  tally.  The  tissue  copy  of  the 
sales  check  supports  the  entry  on  the  tally,  yet  the  charge 
check  will  be  missing.  The  tracer,  in  running  down  this 
missing  check,  will  find  that  the  merchandise  and  sales 
check  are  held  up  in  a  department  known  as  "  Hold  for 
orders. ' '  The  auditing  department  when  familiar  with  the 
conditions  effecting  the  missing  charge  check,  will  record 
such  missing  charge  check  in  a  tickler.  But  the  check  must 
not  be  considered  as  a  sale  until  it  has  been  passed  by  the 
credit  department  and  sent  to  the  Accounts  Receivable 
Department. 

The  tickler  for  missing  charge  checks  must  be  gone  over 
every  day.  No  checks  therein  should  be  permitted  to 
remain  open  longer  than  one  week. 

Part  Paid  Charges. —  There  are  instances  where  a 
charge  customer  will  purchase  an  article,  will  pay  for  part 
of  her  purchase,  and  will  not  desire  to  have  the  entire 
article  charged.  The  cash  on  this  charge  will  naturally  be 
received  by  the  cashier  in  the  department.  The  amount  of 
such  cash  paid  in  is  then  considered  as  a  cash  sale  and  the 
balance  as  a  charge  sale.  The  auditing  department  will! 
make  their  discrimination  in  the  charge  sales  by  using  the 
balance  of  the  check,  which  is  a  charge,  as  a  charge  sale; 


AUDITING  127 

i 

and  the  part  paid  cash  will  be  entered  as  so  much  cash 
received  and  recognized  as  a  cash  sale. 

There  are  stores  which  will  consider  the  total  amount  of 
the  sale  as  a  charge  and  the  part  paid  in  cash  as  a  payment 
on  account.  But  this  procedure  does  not  record  the  exact 
transaction.  It  may  be  a  matter  of  opinion  or  choice  which 
method  should  be  adopted.  However,  the  former  has  been 
proven  to  give  the  desired  results,  though  tha  latter  is  in 
considerable  use. 

Transfer  Checks. —  Particular  attention  must  be  given 
to  the  auditing  of  a  class  of  checks  known  as  transfer 
checks.  The  different  sales  checks  made  in  the  various 
departments  of  the  store  must  be  assorted  according  to  the 
serial  number  by  which  the  transfer  check  is  known.  The 
auditing  department  reconciles  these  individual  checks  with 
the  transfer  sales,  verifying  the  correctness  according  to 
both  additions  and  postings  on  the  transfer  card.  Upon 
the  completion  of  such  verification  and  classification  of  the 
sale,  that  is,  classifying  of  the  cash,  C.  O.  D.  or  charge  sale, 
they  are  summarized  and  transferred  to  the  various  depart- 
ments where  the  sales  were  effected,  and  added  to  the  sum- 
mary of  the  sales  record  in  order  to  ascertain  the  com- 
pleted sales  for  the  various  departments  of  the  establish- 
ment. 

Auditing  departments  dislike  auditing  transfer  checks, 
which  makes  it  more  important  that  a  special  report  be 
rendered  monthly  of  the  transfer  sales.  The  tally  card  of 
the  transfer  checks  and  all  their  originally  attached  checks 
or  supporting  sales  checks,  as  enumerated  on  the  transfer 
tally  or  transfer  card,  should  be  assembled  before  beginning 
the  audit. 

Application  of  Credit  Refunds  to  the  Audit. —  All 
refunds  or  credits  issued  by  the  store  are,  without  question, 
either  in  duplicate  or  triplicate.  The  cashier  who  reim- 
burses the  customer  for  any  cash  refund  voucher  presented 


128  EETAIL  ORGANIZATION  AND  ACCOUNTING  CONTEOL 

must  use  such  refund  check  as  a  part  of  her  cash.  These 
refund  checks  are  turned  over  to  the  auditing  department 
by  the  chief  cashier.  These  checks  along  with  charge 
credits  and  C.  0.  D.  credits  are  verified  with  the  duplicate 
copies  or  tissue  copies  of  the  original  check  that  has  been 
issued.  "When  they  are  found  to  be  correct,  they  are  enu- 
merated in  their  various  classes.  That  is,  the  total  amount 
of  cash  credits  is  deducted  from  the  cash  sales  in  order  to 
ascertain  the  net  cash  sales  for  the  store.  C.  0.  D.  credits 
are  likewise  deducted  from  the  total  C.  0.  D.  sales  from  the 
individual  department  in  which  it  is  affected,  in  order  to 
ascertain  the  net  C.  0.  D.  sales.  The  same  is  applicable  for 
charge  credits  against  the  charge  sales. 

Part  Paid  Charge  Credits. —  Where  a  part  paid  charge 
is  returned,  particular  attention  must  be  given  to  that  type 
of  credits.  The  amount  of  the  original  charge  must  be 
referred  to  the  ledger,  where  a  description  of  the  original 
sale  will  be  found.  This  is  done  in  order  to  pass  a  further 
charge  credit  and  to  make  a  cash  refund  only  for  the 
amount  of  cash  paid  in,  which  amount  of  cash  is  applicable 
to  cash  sales.  The  policy  in  handling  part  paid  charges 
effects  the  reversing  of  the  charge  in  making  credits. 

Part  Paid  C.  0.  D.  Credits. —  The  same  method 
described  in  the  part  paid  charge  credits  is  applicable  to 
the  C.  0.  D.  part  paid  credits.  When  a  part  paid  credit  is 
desired  from  a  C.  0.  D.  sale,  reference  should  be  made  to 
the  entry  in  the  C.  O.  D.  ledger.  Many  stores  require  the 
sales  check  to  be  presented  with  the  merchandise  when  any 
credit  is  requested.  But,  very  often,  indeed,  the  customer 
misplaces  the  check  and  simply  presents  the  merchandise 
or  makes  a  claim  for  her  credit.  This  entails  investigation. 
Very  often  the  customer  will  become  irritated  because  she 
is  obliged  to  wait  while  investigations  are  made.  The 
delays  are  often  eliminated  through  efficient  and  general 


AUDITING  129 

house  systems,  which  the  author  treats  of  in  the  chapter 
on  Turnovers  and  Merchandising. 

Alteration  Sales  Audit. —  The  alteration  department, 
which  is  a  workroom  conducted  for  the  altering  of  clothing, 
whether  it  is  men's  or  women's  apparel,  has  a  separate 
record  of  its  sales.  These  sales  are  charges  made  to  cus- 
tomers for  style  changes  or  proper  fitting  of  garments. 
These  sales  may  be  either  cash  payments  or  charges,  but 
they  should,  under  no  circumstances,  be  C.  0.  D.  In 
the  case  of  a  C.  0.  D.  sale  that  requires  an  alteration,  a  part 
payment  of  such  C.  0.  D.  sale  must  be  gotten  in  order  to 
insure  the  customer's  taking  the  garment,  including  a  suffi- 
cient compensation  to  cover  the  alteration  charges  and  the 
changes  made  in  the  merchandise.  A  separate  sales  check 
is  very  seldom  made  for  alteration  sales.  Exceptions  are* 
only  where  the  customer's  own  merchandise  is  offered  to 
the  store  for  alteration,  and  the  store  accepts  such  altera- 
tion for  the  reason  that  the  patron  is  a  permanent  cus- 
tomer of  the  store.  This  is  generally  termed  an  **  accom- 
modation." 

The  auditing  department  will  list  under  a  separate 
record  the  amount  of  alteration  charges  appearing  on  each 
sales  check.  When  an  alteration  appears  on  a  sales  check 
for  any  specific  department,  the  sales  of  that  specific 
department  are  deducted  to  the  extent  of  the  alteration 
charges.  The  alteration  charges  are  then  considered  a  sale 
to  the  credit  of  the  alteration  department.  At  the  close  of 
the  day's  audit,  the  total  amount  of  alteration  charges  or 
sales  is  enumerated  and  passed  to  the  credit  of  the  altera- 
tion room.  This  is  done  in  order  to  set  up  an  account  for 
the  alteration  department,  in  which  account  it  is  debited 
under  various  headings  with  the  overhead  costs  as  well  as 
labor  expenses.  Thus  a  profit  or  a  loss  may  be  known  at 
any  period,  as  well  as  the  cost  and  the  income  obtained 
from  such  alteration  department. 


130  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

Commissions. —  The  custom  in  use  in  most  stores  is  to  pay 
in  addition  to  the  stipulated  salary  to  sales  persons,  com- 
missions based  on  a  certain  amount  of  their  sales.  After 
completing  the  audit  of  the  sales  checks  and  after  the  tal- 
lies have  been  audited  properly,  the  tallies  are  in  turn 
sent  to  the  paymaster's  office,  where  a  commission  record  is 
set  up.  The  same  method  is  applicable  to  P.  M.'s  (see 
Form  13). 


CHAPTER  V 

BALANCE  SHEET 

Open  Corporations. —  Corporations  whose  stock  has 
been  found  attractive  for  investments  when  sold  on  the 
open  market,  are  known  as  open  corporations.  These  cor- 
porations may  be  any  organization  incorporated  in  any 
state  of  the  Union  or  in  any  foreign  country.  The  amount 
of  stock  of  such  corporations  is  controlled  by  the  stipula- 
tions of  its  charter  and  the  statutory  individual  require- 
ments of  the  state  of  its  incorporation.  The  stock  or  share 
may  be  of  different  forms.  Its  value  and  voting  powers  are 
subject  to  the  provisions  of  the  charter  or  by-laws  of  the 
corporation. 

Close  Corporations. —  This  form  of  corporation  is  gen- 
erally formed  by  companies  desiring  to  enjoy  the  privileges 
granted  to  corporated  organizations.  Usually  close  cor- 
porations are  family  affairs  or  are  composed  of  three  indi- 
viduals or  small  groups  of  citizens,  whose  interests  are  indi- 
cated by  the  number  of  shares  or  certificates  of  stocks  held 
by  these  individuals  in  such  organizations.  The  voting 
power  and  distribution  of  profits  for  dividends  are  gener- 
ally represented  by  the  certificates  of  stock  held.  The 
capital  of  such  corporation  may  vary  from  a  minimum  of 
$500  (permitted  in  some  states)  to  any  amount  desired, 
providing  the  amount  paid  in  to  the  corporation  within  a 
stipulated  period  complies  with  statutes  of  the  state  in 
which  the  organization  has  been  incorporated. 

Limited  Liability. —  Generally,  in  most  states  of  the 
union,  in  the  event  of  the  insolvency  of  the  corporation,  a 
stockholder  is  liable  only  to  the  amount  of  stock  he  may 
hold.  There  are  exceptions  in  some  states  in  relation  to 

131 


132  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

banks  and  trust  companies,  where  the  stockholder  is  liable 
for  the  par  value  of  the  certificates  held.  However,  the  lia- 
bilities of  every  corporation  are  governed  by  the  statute. 

A  subscriber  to  stocks  in  a  corporation  that  has  become 
insolvent  may  be  held  liable  by  the  creditors  of  such  cor- 
poration for  the  difference  between  the  amount  he  has  sub- 
scribed and  the  par  value  of  the  stock.  However,  the  cor- 
poration itself  cannot  hold  the  subscriber  liable  for  the  bal- 
•  ance  of  his  subscriptions  to  the  amount  of  stock  subscribed 
for  or  for  par  value  of  the  stock. 

Domestic  Corporations. —  A  corporation  which  carries 
on  its  business  in  a  particular  state  should  obtain  its  char- 
ter of  incorporation  in  the  state  where  it  is  conducting  its 
operations.  When  such  a  corporation  carries  on  its  princi- 
pal business  outside  the  state  of  its  incorporation,  it 
becomes  a  foreign  corporation  and  must  comply  with  the 
formalities  prescribed  in  the  state  doing  business.  Organi- 
zations may  incorporate  in  one  state  and  do  business  in, 
another.  In  such  instances,  a  permanent  office  with  its 
stock  records  must  be  kept  in  the  state  of  incorporation. 
On  account  of  certain  privileges  and  rights  allowed  in  some 
states,  this  mode  of  procedure  is  often  followed. 

Foreign  Corporations. —  A  corporation  carrying  on  its 
business  in  a  state  other  than  the  state  of  its  incorporation 
is  liable  to  restriction  in  its  operations  and  is  not  recognized 
as  a  corporation.  Its  directors  and  stockholders  may  be 
considered  as  a  partnership  and  liable  as  a  partnership 
organization.  Where,  however,  such  foreign  corporations  • 
have  complied  with  the  necessary  requisites  that  the  law 
provides,  the  same  privileges  may  be  accorded  them  as  are 
enjoyed  by  domestic  corporations. 

Stock  Certificates. —  The  author  does  not  presume  to 
describe  fully  the  various  stocks,  their  functions,  nor  legal- 
ity under  diverse  conditions.  But,  in  passing,  he  describes 
them  where  they  may  affect  the  organization  and  system  of 


BALANCE  SHEET  133 

the  retail  establishment  within  the  scope  of  its  accounting 
procedure. 

Stock  certificates  of  a  corporation,  like  a  mortgage  or  a 
real  estate  deed,  are  merely  an  identification  supporting- 
claim  of  ownership.  This  does  not  imply  that  a  lost  cer- 
tificate relinquishes  the  owner  of  his  equity.  The  stock 
books  of  record  verify  the  owner's  claim  just  as  a  real 
estate  deed  does,  generally  being  recorded  upon  munici- 
pality records.  However,  lost  certificates  of  stock  cause 
annoyance  in  obtaining  duplicates,  though  the  law  requires 
corporations  to  issue  duplicates. 

A  corporation  may  receive  its  charter  for  any  capitaliza- 
tion that  it  desires,  providing  the  fee  is  paid  to  the  state 
through  its  secretary  until  such  stock  is  taken  up  and  paid 
for  by  the  incorporators  or  stockholders.  The  stock  repre- 
senting the  capitalization  is  termed  ' '  Unissued  Stock. ' '  It 
is  not  an  asset  and  must  not  appear  as  such  on  the  books  of 
the  company.  Likewise  unissued  stock  has  no  relation  to 
treasury  stock.  Treasury  stocks  are  those  stocks  of  a  cor- 
poration which  are  fully  paid  for  and  through  some  busi- 
ness transaction  become  the  property  of  the  company. 
They  may  then  become  an  asset  of  the  corporation,  but 
legally  they  have  no  voting  power,  nor  can  they  receive 
dividends.. 

The  stock  issued  by  the  corporation  represents  that  por- 
tion of  its  capitalization  that  has  been  paid  up  by  either 
cash  or  other  tangible  property  which  becomes  an  asset  to 
the  corporation.  Such  stock  issued  may  then  be  designated 
as  "  ISSUED  STOCK." 

Common  Stock. —  Stock  known  as  common  is  such 
stock  as  carries  no  preferential  benefits  and  receives  its 
share  of  declared  dividends  or  profits  after  all  distribution, 
of  profits  and  claims  has  been  made.  This,  however, 
is  subject  to  the  by-laws  of  the  corporation  or  the  specifica- 
tion of  privileges  indicated  on  the  face  of  the  stock. 


134  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

Preferred  Stock. —  This  classification  of  stocks  receives 
the  benefits  of  all  profits  or  dividends  they  represent  in 
priority  to  other  stocks.  There  may  be  cumulative  or  non- 
cumulative  dividends.  Cumulative  preferred  with  a  spe- 
cific percentage  of  dividends  are  such  stocks  as  receive  their 
dividends  at  stipulated  periods.  In  the  event  that  the 
profits  are  not  sufficient  to  pay  the  dividends  and  only  part 
dividends  can  be  distributed  from  the  profits  of  the  com- 
pany, the  unpaid  dividend  may  be  carried  over  from  year 
to  year  until  the  company's  profits  are  such  as  to  pay  the 
dividends.  Thus,  profits  become  a  prior  claim  to  preferred 
stock.  The  balance  may  then  be  declared  as  dividends 
to  common  stock.  Non-cumulative  stocks  are  stocks 
where  profits  are  not  sufficient  to  declare  dividends  at  spe- 
cific periods.  They  do  not  carry  any  obligation  on  the  part 
of  the  corporation  to  make  good  the  insufficient  dividend  at 
a  later  period.  Not  only  does  the  preferred  stock  hold  an 
advantage  over  all  other  stocks,  as  to  dividends,  but  con- 
siderable preferences  are  granted  to  it  through  its  charter 
and  by-laws.  Many  companies  will  set  up  a  reserve  from 
their  profits  to  meet  cumulative  dividends.  They  may  also 
set  up  a  reserve  to  retire  the  preferred  stock  at  a  specified 
period. 

Debentures. —  The  definition  of  a  Debenture  is  ' '  An 
unsecured  acknowledgment  of  a  debt  with  a  promise  to  pay 
at  a  stipulated  time  or  sooner. ' '  Debentures  may  some- 
times stipulate  a  priority  of  payment  in  the  event  of  a  dis- 
solution of  the  company  or  in  the  matter  of  insolvency. 
Often  debenture  bonds  may  protect  the  investor  through 
special  provisions  obligatory  on  the  part  of  the  directors  or 
upon  mortgages.  Such  debentures  are  rare  in  the  United 
States,  though  common  in  England.  A  debenture  whose 
promised  interest  or  principal  has  not  been  met  can  only 
have  the  same  legal  redress  as  an  unpaid  note,  unless  such 
a  debenture  carries  with  it  collateral  as  here  described. 


BALANCE  SHEET  135 

Bonds. —  Bonds  are  issued  for  the  borrowing  of  money 
covering  a  period  of  years.  They  are  secured  by  the  assets 
of  a  corporation  and  a  promise  to  pay  the  face  value  at  the 
termination  of  the  time  stipulated  in  the  body  of  the  instru- 
ment. Bonds  are  negotiable  instruments  when  payable  to 
bearer  or  holder  or  to  order,  or  when  registered  and  having 
priority  in  claim  upon  the  corporation.  Statutory  provi- 
sions regulate  the  issue  of  bonds  by  corporations.  These 
generally  are  stipulations  not  to  exceed  a  portion  of  the 
capital  stock  based  upon  the  value  of  the  assets.  The  laws 
of  the  state  in  which  a  company  is  incorporated  should  be 
searched  thoroughly  prior  to  issuing  bonds,  in  order  that 
legality  be  conformed  with. 

Coupon  bonds  are  those  bonds  upon  which  are  attached 
promissory  notes  payable  to  bearer,  representing  the 
accrued  interest  at  specific  periods.  The  periods,  as  a  rule, 
of  semi-annual  interest  payments,  continue  until  the  face 
value  of  the  bond  becomes  due  and  payable.  Registered 
bonds  are  those  which  are  registered  upon  the  books  of  the 
corporation  in  the  name  of  the  owner.  The  interest  is  pay- 
able by  bank  checks  to  the  owner  of  record.  In  the  case  of 
coupon  bonds,  prior  to  maturity  of  interest,  the  corpora- 
tions liable  for  outstanding  bonds  will  deposit  with  a  bank- 
ing institution  the  full  amount  of  interest  due.  This  bank 
will  pay  all  coupons  presented,  cancel  the  coupon  and  regis- 
ter it  into  a  regular  coupon  register  record.  These  records 
coordinate  with  the  series  number  of  the  bond  and  the 
coupon  number,  and  are  pasted  in  such  record  for  further 
reference.  For  example,  a  bond  issued  for  $1,000  for  20 
years  at  4  per  cent  interest  payable  semi-annually  will  have 
80  interest  coupons  attached.  Each  of  these  coupons  is 
numbered  consecutively.  The  first  maturing  interest 
coupon  is  number  one  and  the  last  maturing  coupon  is 
number  eighty,  at  which  time  the  face  value  of  the  bond 
becomes  due  and  payable. 


136  EETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

The  advantages  of  coupon  bonds  are  that  they  are  pay- 
able to  the  bearer  and  are  readily  negotiable,  whereas  the 
registered  bonds  require  the  assignment  and  transfer  on  the 
books  of  the  corporation  issuing  the  bonds.  la  event  of  a 
loss,  the  owner  is  protected,  which  is  not  the  case  with  the 
coupon  bond. 

A  company  may  issue  several  bonds,  such  as  first,  second 
or  third  mortgage  bonds,  sinking  fund  bonds,  convertible 
bonds,  collateral  bonds,  etc.  "Where  a  company  issues  more 
than  one  mortgage  bond,  the  subsequent  issues  become 
junior  liens.  That  is,  the  first  mortgage  bond  will  be  a 
prior  lien  to  all  subsequent  mortgage  bonds  issued. 

Convertible  bonds  are  such  that  may  be  converted  into 
other  securities  issued  by  the  company  or  may  be  converted 
into  stock  of  the  company  as  prescribed  in  the  bond  of  issue. 
Collateral  bonds  are  generally  secured  by  collateral  of  other 
companies. 

Trial  Balance. —  Trial  balance  is  very  often  misinter- 
preted by  business  men  who  are  not  accountants,  as  being 
a  statement  showing  affairs  of  a  company.  This  is  brought 
about  through  confusing  interpretations  of  the  balance 
sheet.  The  trial  balance  should  have  no  meaning,  what- 
ever, to  the  management  of  an  incorporation  or  the  owner 
of  a  business  organization.  It  is  merely  a  proof  sheet  to 
the  bookkeeper  to  prove  that  his  postings  and  his  work  for 
a  specified  period,  generally  monthly,  have  been  done  cor- 
rectly. It  does  not,  however,  prove  that  the  work,  in  all  its 
phases  is  absolutely  correct.  While  the  postings  may  be 
correct,  it  very  often  may  happen  that  a  debit  or  a  credit 
may  be  posted  to  the  wrong  account.  Still  the  work  will 
be  in  balance.  The  trial  balance,  therefore,  is  a  summary 
of  all  the  debits  and  credits  of  a  ledger,  which  when  separ- 
ately added  to  a  total  should  equalize.  It  is  essential, 
before  entering  into  any  statement  regarding  the  condition 
of  affairs,  that  all  debits  and  all  credits  should  equalize. 


BALANCE  SHEET  137 

."Without  this  it  would  be  impossible  to  set  up  correctly  the 
balance  sheet. 

The  balance  sheet  of  a  commercial  enterprise  or  of  any 
organization  is  a  statement  showing  its  financial  condition 
at  a  particular  time.  It  summarizes  all  the  assets,  which  is 
a  listing  of  all  the  cash,  stock  in  trade  and  investments  of 
outside  moneys  or  property  of  an  organization.  In  fact, 
it  represents  everything  that  may  be  converted  into  cash 
or  that  may  be  recovered  in  cash,  from  which  entire  total 
the  liabilities  of  the  organization,  regardless  of  what  their 
nature  may  be,  is  deducted.  As  a  result,  the  net  worth  of 
the  corporation,  individual  or  partnership  shows. 

The  term  "  net  worth,"  however,  is  generally  applied  to 
individual  or  private  enterprise,  and  is  supplanted  by  the 
term  of  "  surplus  "  when  applicable  to  corporations. 

Reading  of  the  Balance  Sheet. —  Not  a  few  men  of  busi- 
ness affairs  are  properly  able  to  read  the  balance  sheet.  It 
should  be  incumbent  upon  the  accounting  department  or 
office  management  presenting  a  financial  statement  or  bal- 
ance sheet  to  have  it  so  set  up  that  it  shows  the  conditions 
of  business  affairs.  So  that,  though  such  person  is  not  an 
accountant  or  is  not  versed  in  accounting  technicalities  and 
terms,  he  should  find  the  balance  sheet  readily  discernible. 
To  do  this,  the  accountant  should  so  set  up  tHe  various 
accounts  that  the  terms  will  be  self-explanatory.  The  cur- 
rent assets  should  be  so  set  up  that  they  can  be  compared 
readily  with  the  current  liabilities,  and  so  that  the  ratio  of 
current  assets  over  current  liabilities  can  be  seen  at  a 
glance.  The  owner  of  an  organization  or  manager  of  a 
corporation  should  be  able  to  ascertain  the  net  worth  at  a 
glance.  From  the  capital  invested  he  should  be  in  a  posi- 
tion to  recognize  readily  the  net  working  capital  involved. 
This  may  be  found  by  deducting  the  total  current  liabili- 
ties, total  reserve  investments,  and  fixed  assets  from  the 
total  assets,  which  would  give  the  amount  of  working  capi- 


138  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

tal.  In  the  ease  of  a  corporation,  the  total  amount  of  capi- 
tal plus  surplus  to  be  reduced  is  obtained  by  deducting 
fixed  assets,  outside  investments  and  even  deferred  assets. 
The  remainder  is  the  working  capital  of  the  organization. 

It  is  to  be  noted  that  a  financially  well  managed  store 
should  average  its  cash  on  hand  to  be  not  less  than  2  per 
cent,  and  such  percentage  may  average  up  to  5  per  cent,  of 
the  gross  annual  sales.  The  current  liabilities  should  never 
exceed  18  per  cent  of  the  annual  sales  and  should  be  kept 
down  to  10  per  cent  to  keep  within  the  danger  zone  of  over- 
borrowing.  The  working  capital  of  the  department  store 
should  be  not  less  than  30  per  cent,  and  should  average  55 
per  cent  of  the  total  capital. 

The  ratio  of  liquid  assets  over  liquid  liabilities  should  be 
two  to  one.  That  is  the  percentage  of  assets  readily  con- 
verted into  cash  to  those  of  quick  liability,  though  75  per 
cent  of  liquid  assets  shown  as  liquid  liabilities  is  a  conserva- 
tive showing. 

Current  Assets. —  Current  assets  is  a  term  applied  to 
such  assets  as  can  be  turned  readily  into  cash.  They  may 
also  be  termed  liquid  assets.  Another  term  is  quick  assets. 
The  term  quick  assets  is  generally  used  by  bankers  in 
describing  such  assets  as  are  readily  turned  into  cash.  In 
setting  up  a  balance  sheet,  the  first  group  to  appear  is  that 
of  the  quick  assets.  These  are  headed  by  the  term  ' '  CUB- 
BENT  ASSETS.  ' '  All  assets  under  this  term  must  be  such  as 
can  be  audited  and  verified  readily  as  to  their  correctness. 

Gash  in  Bank. —  All  cash  receipts  and  disbursements 
will  appear  in  the  cash  book  or  a  subsidiary  cash  book  in 
which  all  vouchers,  whether  bank  checks  or  authorized  cash 
vouchers,  will  be  listed.  Periodically  all  of  these,  depend- 
ing upon  the  volume  of  cash  disbursed  or  received,  will  be 
reconciled  with  the  bank  in  order  to  determine  the  correct- 
ness of  book  records  corresponding  with  the  bank  balances 
in  the  institutions  where  the  business  does  its  banking.  All 


BALANCE  SHEET  139 

checks  issued  by  the  company  which  have  not  been  put 
through  the  clearing  house  will  naturally  show  a  larger 
bank  balance.  While  this  is  a  fact,  it  does  not  authorize  a 
company  to  correct  its  cash  in  bank  record  on  its  own 
book  to  that  of  the  bank. 

In  reconciling  the  business  balance  with  the  banking  bal- 
ance, checks  issued  by  the  organization,  not  having  been 
cleared  through  the  clearing  house,  should  be  deducted 
from  the  banking  balance  with  other  banking  charges. 
Also  checks  that  have  been  certified  and  the  net  balance  at 
the  bank  should  equalize  the  balance  as  shown  on  the  books 
of  the  company. 

Cashier's  Balances. —  It  is  customary  for  all  cashiers  to 
carry  a  sufficient  amount  of  cash  in  their  trays  or  tills  to  be 
used  for  change.  This  amount  varies  from  $10  up  to  per- 
haps $100.  In  addition  to  this,  the  general  cashier  will 
carry  a  balance  from  $1,000  upward,  depending  upon  the 
volume  of  business  that  the  company  may  transact.  All 
this  cash  is  generally  small  currency,  such  as  pennies,  five 
cent  pieces,  dimes,  quarters,  and  half  dollars.  The  general 
cashier  is  charged  with  the  total  of  all  cash;  that  is,  not 
alone  the  cash  which  she  maintains  in  her  own  safe  but  that 
of  the  individual  cashiers  stationed  in  the  various  sections 
of  the  store.  In  turn,  the  chief  cashier  will  hold  the  indi- 
vidual cashiers  accountable  for  their  cash  balances  and  the 
cash  turned  in  daily  from  sales.  The  general  cashier  will 
periodically  audit  station  cashiers'  trays  or  tills  as  to  their 
daily  balances. 

It  will  readily  be  seen  that  a  certain  sum  of  money  will 
be  tied  up.  This  money,  while  a  current  asset  and  right- 
fully termed  a  liquid  or  quick  asset  when  compared  against 
liquid  liabilities,  will  increase  the  ratio.  But  cognizance 
must  be  taken  of  the  fact  that  the  cashiers'  balances  are 
a  withdrawal  from  the  actual  current  assets  and  should 
only  be  used  if  the  company  were  in  liquidation.  Cashiers* 


140  EETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

"balances  will  decrease  the  turnover  of  the  working  capital, 
but  the  necessity  for  the  use  of  change  requires  that  these 
sums  be  carried  by  cashiers,  thereby  losing  its  actual  worth 
as  working  capital  in  relation  to  merchandise. 

Cashiers'  balances  should  be  checked  up  at  least  once  a 
month  to  determine  their  accuracy  when  compared  to  the 
general  ledger  account. 

Paymaster's  Balances. —  The  pay-roll  department  car- 
ries a  working  fund,  the  uses  of  which  may  be  varied.  This 
fund  is  generally  in  proportion  to  the  number  of  people 
employed  and  the  amount  of  the  weekly  pay  roll.  It  may  be 
used  for  advances  on  salaries  to  coworkers,  which  advance 
is  deducted  on  the  pay  roll  day,  or,  it  may  be  used  to  pay 
off  help  who  have  been  discharged  or  who  may  have  resigned 
their  positions.  At  best,  advances  on  salaries  are  bad 
policy,  not  only  on  the  part  of  the  coworker  but  employer. 
Quoting  Shakespeare's  Hamlet,  "Neither  a  borrower  nor  a 
lender  be."  However,  where  100  per  cent  cooperation  of 
the  coworker  is  required,  it  is  necessary  to  meet  such 
cooperation  on  the  same  footing  of  reciprocity,  but  to  dis- 
courage advances  on  salaries  in  a  diplomatic  fashion. 

Paymaster's  balances  or  working  funds  should  periodic- 
ally be  checked  up.  In  very  few  instances  at  the  closing  of 
the  pay  roll  date,  the  full  amount  of  the  general  ledger 
account  calling  for  the  paymaster's  working  fund  should 
be  on  hand  in  the  paymaster's  safe  at  the  close  of  such  pay 
roll  day. 

Office  Petty  Cash. —  The  balance  of  the  office  cash  on 
hand  at  the  close  of  the  month's  records  is  a  part  of  the' 
current  assets  and  should  appear  as  such  on  the  balance 
sheet.  This  office  cash,  better  known  as  Petty  Cash,  should 
be  so  kept  that  a  regular  audit  will  verify  the  correctness 
of  all  expenditures  in  a  manner  similar  to  the  reconciliation 
of  bank  vouchers.  Generally,  the  working  fund  for  petty 
cash  is  used  to  draw  funds  as  requirements  may  determine, 


BALANCE  SHEET  141 

against  which  vouchers  will  be  made,  properly  counter- 
signed, for  the  various  petty  expenditures. 

Delivery  Working  Funds. —  This  fund,  used  by  the 
chauffeurs  or  drivers,  is  in  a  measure  the  same  as  the 
cashiers'  balances,  though  not  in  the  same  proportion  as 
that  of  the  cashier's.  Drivers'  funds  vary  in  amounts 
from  $5  to  $10,  generally  $5.  Each  chauffeur  or  driver  is 
charged  with  a  stipulated  working  fund  which  he  uses  as 
change  when  delivering  a  C.  0.  D.  or  a  part  paid  sale. 
This  fund,  like  other  funds,  should  periodically  be  audited 
for  a  verification  of  the  General  Ledger  account  and  to  sup- 
port correctness  in  placing  such  funds  as  may  appear  under 
Current  Assets. 

Other  Cash  on  Hand. —  Under  this  caption  of  other 
cash  on  hand,  which  might  appear  under  current  assets,  are 
the  classing  of  the  month's  books,  which  would  represent 
the  cash  receipts  from  cash  sales  or  other  collections  made 
either  too  late  to  deposit  in  the  bank,  or  carried  over  on 
account  of  holidays  or  Sundays,  or  not  deposited  for  any 
other  reason.  Such  cash  should  be  compared  with  the  daily 
audit  of  sales  checks  and  further  entries  in  the  various  cash 
books  to  determine  correctness,  and  should  appear  under 
the  various  Cash  records  in  the  general  ledger  until  dis- 
tributed to  its  proper  destination. 

Accounts  Receivable — Charge  Accounts. — The  accounts 
receivable  will  represent  charges  to  customers  who  enjoy 
privileges  of  a  charge  account  with  the  company.  How- 
ever, before  placing  the  amount  of  accounts  receivable  from 
the  ledger  on  to  the  balance  sheet,  careful  attention  should 
be  given  to  such  accounts  as  are  known  to  be  uncollectable. 
In  such  cases  these  accounts  should  be  written  off  and 
charged  to  provision  for  bad  debts  and  doubtful  accounts. 
This  is  done  for  better  reading,  and  to  show  the  condition 
of  accounts  receivable  from  the  balance  sheet.  Very  little 
additional  work  is  required  on  the  part  of  the  individual 


142   EETAIL  ORGANIZATION"  AND  ACCOUNTING  CONTROL 

ledger  clerk  in  setting  up  their  trial  balances  to  show 
accounts  which  have  not  as  yet  reached  an  age  of  90  days, 
and  other  accounts  which  may  have  been  unpaid  for  four 
months  or  longer;  also  accounts  that  have  been  due  over 
one  year.  "While  it  seems  that  such  conditions  should  not 
exist,  it  is  doubtful  whether  every  organization  in  a  depart- 
ment store  business  would  show  all  its  accounts  to  be  of  a 
very  recent  date. 

If  an  account  is  six  months  old  and  it  is  doubtful  whether 
its  face  value  or  any  part  thereof  can  be  collected,  it  is  best 
to  write  the  amount  off  to  bad  debts  and  doubtful  account, 
and  to  set  it  up  in  the  suspense  ledger  as  a  record.  If  an 
account  has  been  allowed  to  lapse  six  months,  and  the 
chances  of  collecting  the  account  cannot  be  said  to  be  very 
encouraging,  the  account  which  has  been  permitted  to  run 
six  months  or  a  year  and  carried  as  Accounts  Eeceivable 
should  be  corrected  promptly.  There  are  instances  where 
legal  action  has  been  taken  to  collect  accounts.  In  such 
cases,  the  account  should  be  written  off  and  charged  to  a 
Litigation  account.  Should  judgment  be  received,  the  Liti- 
gation account  should  be  credited  and  the  Judgment 
account  opened.  This  last  account  should  appear  in  a  class 
by  itself  on  the  Balance  sheet  (see  Judgment)  when  judg- 
ment is  taken  or  received. 

C.  0.  D.s. —  The  amount  open  for  C.  0  D.s  appearing 
on  a  balance  sheet  should  be  checked  carefully  and  com- 
pared with  the  ledgers  as  to  accuracy.  All  open  C.  0.  D.'s 
should  be  verified  as  to  correctness,  as  it  is  possible  that 
C.  0.  D.'s,  having  been  paid  off,  or  merchandise,  having 
been  returned  to  stock,  have  not  been  recorded  properly. 

Miscellaneous  Accounts  Receivable. —  Moneys  may  be 
outstanding  in  different  forms,  other  than  charge  accounts 
or  C.  0.  D.'s.  Such  accounts  might  be  for  advances  in 
lieu  of  contracts  with  coworkers,  or  unsecured  accommoda- 
tion where  loans  have  been  made.  Individual  accounts 


BALANCE  SHEET  143 

should  appear  in  the  general  ledger  showing  the  various 
conditions  surrounding  the  account.  They  should  be  set 
up  to  appear  under  Accounts  Receivable,  if  the  account  is 
a  collectable  one.  Its  proper  place  as  an  asset  depends 
upon  the  conditions  surrounding  the  outstanding  account 
and  may  be  placed  under  current  assets  or  deferred  items. 

Notes  Receivable. —  In  the  department  store,  notes 
receivable  will  seldom  appear  on  the  balance  sheet  for  the 
reason  that  these  transactions  are  such  that  they  do  not 
incorporate  the  necessity  of  accepting  notes.  However, 
there  may  be  instances  where  notes  are  received  by  a  store 
either  in  payment  for  merchandise  or  as  indorsed  notes 
accepted  as  security  for  loans  or  other  commercial  effects. 
These  notes  receivable  should  appear  with  as  much  detail 
as  possible  in  the  general  ledger,  the  total  of  which  is  to  be 
enumerated  on  the  balance  sheet. 

There  are  instances  where  notes  receivable  held  by  an 
organization  will  be  sent  to  a  bank  to  be  discounted.  When 
this  occurs  the  cash  received  from  the  bank  will  be  a  credit 
to  Notes  Receivable.  But  this  is  only  the  beginning  of  the 
transaction.  An  account  should  immediately  be  set  up 
showing  Notes  Receivable  discounted,  which  will  be  debited 
and  a  reserve  set  up  showing  a  liability  of  the  store  for  the 
amount  of  the  note  discounted.  The  interest  involved  for 
the  amount  paid  to  the  bank,  and  the  amount  received  from 
the  maker  of  the  note,  should  be  taken  care  of  by  the  ele- 
ments surrounding  the  transaction.  When  the  note  is  paid 
by  the  maker,  the  entry  should  be  reversed  if  the  note  was 
discounted  at  a  bank. 

A  store  which  does  not  hold  a  note  or  discount  notes 
receivable,  but  finds  itself  indorsing  a  note  with  recourse, 
should  immediately,  upon  the  indorsement  of  such  nego- 
tiable instruments,  set  up  a  provision  for  such  indorsement 
to  show  the  contingent  liability  of  the  store  for  their 
indorsement.  Such  contingent  liability  should  not  be  writ- 


144  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

ten  off  until  the  negotiable  instrument,  for  which  the  store 
became  the  indorser,  has  been  paid  up  fully  and  the  debt 
canceled. 

Inventories. —  The  monthly  inventory  appearing  in  the 
monthly  balance  sheet  will  be  such  inventory  as  is  shown 
from  the  book  records  (see  Form  25).  This  record  is  a 
perpetual  inventory  conducted  in  the  same  manner  as  a 
cash  book,  adding  to  the  inventory  all  merchandise  received 
and  deducting  therefrom  all  sales  and  mark  downs  or  other 
elements  that  may  arise.  The  net  result  is  that  the  inven- 
tory is  obtained  daily.  While  this  is  a  customary  method 
for  well  regulated  merchandising  systems  in  department 
stores,  such  records  are  supported  as  often  as  once  a  week 
by  physical  inventories  in  the  form  of  tests.  Aside  from 
these,  there  is  the  other  quarterly  or  quarter  annually 
inventory,  with  an  annual  inventory  in  order  to  obtain  the 
figures  necessary  for  the  fiscal  year's  balance  sheet. 

In  taking  a  physical  inventory,  special  attention  should 
be  given  to  the  account  and  the  segregation  of  departments 
and  the  classification  of  merchandise  in  the  diverse  depart- 
ments. Often  inventory  will  be  taken  both  at  cost  price 
and  selling  price,  but  when  a  department  store  accounting 
system  has  been  established  concretely  and  the  merchandise 
system  well  enforced,  it  is  quite  sufficient  to  take  ihe  inven- 
tory at  retail  only.  Thus,  while  saving  a  considerable 
amount  of  work  in  computing  the  cost  and  retail  in  obtain- 
ing the  mark  up,  the  final  calculations  will  be  much  easier 
to  ascertain  by  the  results  at  retail.  The  cost  or  mark  up 
by  departments  can  readily  be  ascertained  by  taking  the 
inventory  at  cost  at  the  beginning  of  the  fiscal  year,  adding 
thereto  all  the  merchandise  purchases  at  cost  by  depart- 
ments, and  deducting  this  result  from  the  total  amount  of 
the  sales  during  the  fiscal  year  by  departments,  plus  the 
inventory  on  net  sales.  This  will  give  the  mark  up  for 
merchandise  during  the  entire  year.  This  also  is  a  proof 


BALANCE  SHEET  145 

against  neglect  on  the  part  of  the  buyer  or  department  man- 
ager to  report  daily  the  mark  downs,  mark  ups,  or  merchan- 
dise sold  under  cost.  Oftentimes  a  proof  of  this  kind  will 
show  surprising  figures,  and  even  differences  existing 
between  the  daily  merchandise  control  and  the  inventory. 
"While  every  precaution  is  taken  to  guard  against  failure  to 
record  all  mark  downs  by  buyers  or  department  managers, 
it  will  always  occur  in  the  best  regulated  stores. 

In  taking  the  physical  inventory,  each  department  should 
be  tested  by  taking  the  various  quantities  making  a  compar- 
ison. The  extensions  and  additions  should  be  checked  and 
verified  before  using  the  results  in  settling  up  the  general 
ledger  or  departmental  ledger  accounts.  In  taking  the 
fiscal  year  inventory  for  the  closing  year,  it  is  customary 
in  department  stores  and  the  larger  retail  establishments  to 
have  the  manufacturers  or  wholesalers,  from  whom  they 
make  their  purchases,  send  "no  merchandise  during  the 
period  of  inventory,  and  even  to  have  them  date  all  invoices 
either  a  week  or  ten  days  or  a  fortnight  ahead  in  order 
that  no  new  merchandise  will  be  included  in  the  inventory 
and  the  closing  of  all  purchases  will  be  recorded  up  to  a 
given  period.  It  can  readily  be  seen  that  should  this  be 
eliminated,  an  incorrect  inventory  must  result  even  though 
every  precaution  for  accuracy  has  been  taken. 

Valuations  of  Inventories. —  In  manufacturing  organi- 
zations, the  taking  of  inventories  will  not  only  include  the 
cost  but  all  transportation  charges.  Very  often  the  last 
price  paid  is  taken  as  the  cost  of  stock.  This  should  not 
occur  in  the  retail  establishment.  If  an  inventory  is  being 
taken  at  cost,  the  actual  cost'paid  for  the  merchandise  must 
be  taken.  "Whether  or  not  the  market  has  fluctuated  has  no 
bearing  whatever.  "Where  an  inventory  is  taken  at  retail, 
all  fluctuations  have  already  been  considered.  There  are 
occasions  where  a  trend  of  the  market  is  such  that  the 
values  of  certain  stocks  have  materially  increased  and  may 


146   RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

remain  increased  for  an  indefinite  time.  In  this  instance, 
merchandise  managers  are  prone  to  make  mistakes  by 
appreciating  the  stock.  Good  business  principles  will  not 
permit  such  appreciation  for  the  reason  that  should  the 
merchandise  sell  at  an  advanced  price,  such  profits  are 
shown  up  in  the  Profit  and  Loss  accounting,  which  is  the 
proper  place  for  such  profits  to  be  detailed.  On  the  other 
hand,  should  a  certain  change  in  the  market  depreciate  the 
value,  the  loss  would  show  in  the  accounting  statement. 

Values  should  not  be  underestimated  nor  overestimated. 
They  should  always  be  taken  at  cost  or  market  value, 
except  where  a  department  store  controls  its  stock  at  retail. 
The  accountant  of  such  a  store  can  readily  ascertain  what 
the  cost  generally  should  be  by  the  method  described  in  the 
inventory  chapter. 

Inventory  of  Merchandise  in  Transit. —  An  organiza- 
tion must  assume  liability  for  all  merchandise  in  transit 
which  has  been  purchased  by  such  organization  and  for 
which  they  hold  an  invoice,  and  Bill  of  Lading.  It  is  real- 
ized that  when  merchandise  is  actually  received  in  the 
premises  of  the  establishment,  the  proper  inventories  will 
be  enhanced.  Still  for  the  closing  entries  for  the  fiscal  year 
inventory,  provision  should  be  made  for  merchandise  in 
transit,  and  reversed  after  the  closing  entry  or  corrected  at 
the  time  that  the  individual  invoices  arrive.  Merchandise 
in  transit  may  reach  very  large  proportions.  Should  this 
be  eliminated  from  the  statement  or  inventory  records,  the 
true  statement  showing  the  affairs  cannot  be  produced. 

The  same  effect  must  follow  in  closing  monthly  records 
and  in  reversing  the  entries  the  first  of  the  following  month, 
in  the  same  manner  as  accruals  are  considered. 

Inventory  of  Supplies. —  The  listing  of  supplies  will 
include  such  items  as  stationery,  printed  matter,  packing 
materials,  twine,  porter  supplies,  etc.,  though  the  greater 
proportion  of  these  supplies  will  be  stationery  and  printed 


BALANCE  SHEET  147 

matter.  As  an  asset,  they  are,  indeed,  of  very  little  value. 
But  in  an  active  concern  they  can  readily  be  taken  at  full 
value  and  treated  as  such  on  the  balance  sheet. 

One  of  the  methods  generally  used  in  handling  these 
items  is  to  charge  each  invoice  for  stationery  and  supplies 
directly  to  the  Burden  of  corporations  under  the  heading 
of  Indirect  Expense.  But  the  fact  that  all  the  stationery 
may  not  be  absorbed  during  the  current  month,  that  it  is 
charged  as  an  expense  and  that  a  larger  proportion  may  be 
carried  over  for  several  months  thereafter,  would  not  seem 
to  be  equitable  in  charging  one  month's  burden  instead  of 
the  burden  of  several  months  at  a  proportionate  burden. 

Accountants  may  argue  that  the  inventory  of  supplies 
should  be  treated  as  a  Deferred  Asset  in  the  same  manner 
as  postage  stamps  or  prepaid  expenditures.  "While  it  is 
correct  to  do  so,  the  item  of  supplies  with  a  department 
store  or  a  retail  establishment  takes  on  huge  proportions. 
Especially  the  stationery  and  printed  matter  become  quite 
a  factor  in  the  management  and  the  support  of  the  policy 
on  which  a  store  is  based.  It,  therefore,  is  logical  to  set  up 
a  supply  inventory  in  the  same  manner  as  that  of  mer- 
chandise carried  on  in  trade.  In  a  going  organization,  it 
may  be  treated"  as  a  current  asset.  However,  for  credit  pur- 
poses and  the  determination  of  liquid  assets,  it  should  be 
eliminated. 

Decorator's  Inventory. —  "While  this  item  as  an  inven- 
tory might  seem  insignificant,  and  even  at  times  impossible, 
yet  an  inventory  taken  of  all  the  decorator's  supplies  would 
give  astonishing  figures.  Under  the  heading  of  decorator's 
inventory  would  be  listed  all  materials  used  for  window 
display  and  interior  decorations.  Where  a  cost  accounting 
is  established  in  order  to  set  up  a  proper  cost  to  the  various 
departments  for  window  display  occupying  the  display  win- 
dows, any  expenditures  for  window  decorations  should  be 
a  charge  for  window  display  advertising  and  should  be  dis- 


148  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

tributed  monthly  to  the  departments  occupying  window 
space.  Most  department  stores  charge  this  expenditure  to 
advertising,  and  others  carry  the  purchase  as  an  inventory. 
A  decorator's  inventory  should  always  be  perpetual.  Any 
articles  purchased  must  immediately  be  added  to  this  inven- 
tory, and  occasionally  a  physical  verification  must  be  made. 
Where  purchases  for  decorations  are  not  immediately 
charged  against  the  operating  burden,  but  are  carried  as 
an  inventory,  a  depreciation  of  such  inventory  should  be 
provided  for. 

Work  Room  Inventory. —  It  is  customary  in  all  con- 
cerns where  alterations  are  made,  especially  in  the  case  of 
ready  to  wear  apparel,  that  a  charge  be  made  to  the  cus- 
tomer for  alterations.  However,  there  are  not  a  few  stores 
which  make  alterations  free  of  charge.  The  outlay  for 
these  alterations  is  considerable,  all  depending  upon  the 
volume  of  business  transacted  in  the  apparel  lines.  Such 
purchases  immediately  become  a  charge  against  income. 
"Where  alterations  are  made  free  of  charge,  the  purchase  of 
materials  becomes  a  direct  charge  for  the  upkeep  of  a  depart- 
ment. In  setting  up  an  account  for  the  alteration  room 
where  a  charge  is  required  for  alteration,  all  the  elements 
of  material,  labor  and  expense  must  be  accounted  for  in 
order  that  a  proper  accounting  be  produced  periodically  of 
conditions  applicable  to  the  alteration  department. 


CHAPTER  VI 

BALANCE  SHEET 

Investments. —  An  organization  having  accumulated 
profits  may  either  declare  dividends  and  withdraw  a  portion 
of  its  profits,  or  make  investments,  or  do  both.  Perhaps  it 
may  utilize  such  profits  for  expansion.  In  any  case,  where 
profits  have  been  accumulated,  careful  consideration  must 
be  given  to  the  proper  working  capital  the  business  requires. 
To  do  this,  the  balance  sheet  should  be  analyzed  carefully 
prior  to  a  decision  for  making  investments.  All  problems 
of  future  transactions,  the  standing  of  the  store  in  its  com- 
munity, the  necessity  for  replenishment  of  fixed  assets 
should  be  considered.  A  careful  investigation  should  be 
made  of  all  reserve  funds  to  cover  future  problems  and  the 
actual  condition  of  such  reserves.  Thus,  the  working  capi- 
tal is  determined  upon  to  cope  with  present  and  future 
business  requirements. 

Circulating  Capital. —  In  order  that  the  working  capital 
may  be  determined  properly,  every  element  of  the  store's 
merchandise  must  be  taken  into  consideration.  While  it  is 
conceded  that  increase  of  capital  in  a  going  business 
should  be  the  result  of  accumulated  profits  and  that  this  is 
obtained  through  the  quick  turnover  of  stocks,  yet  this  is  not 
sufficient  reason  why  capital  should  be  withdrawn  for  per- 
manent investments.  The  merchandising  records  may  be 
misleading.  Prior  to  making  investments  the  inventory 
should  be  examined  as  to  the  age  of  all  stocks  on  hand.  It 
may  be  found  that  a  large  percentage  of  merchandise  is  old 
and  can  be  best  given  away,  which  results  in  a  mark  down 
to  the  extent  of  impairing  the  working  capital. 

It  would  be  more  logical  to  change  the  word  ' '  working  ' ' 

149 


150  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

capital  to  "  circulating  "  capital,  for  it  is  not  the  working 
capital  that  conveys  any  direct  interpretation  in  the  depart- 
ment store.  When  all  stocks  in  trade  are  rapidly  turning, 
such  stocks  are  logically  representing  the  actual  working 
capital.  If  the  stocks  are  moving  rapidly,  their  circulation 
is  revolving  the  capital.  Hence  circulating  capital  is  the 
stock  in  trade  which  is  the  greatest  of  the  current  assets 
aside  from  the  actual  cash  on  hand  and  in  banks. 

It  is  the  sufficient  circulating  capital  plus  excess  capital 
that  must  be  determined  upon  prior  to  considering  outside 
investments.  That  a  sound,  substantial  business  be  estab- 
lished and  every  provision  made  for  its  soundness  be  main- 
tained is  a  requisite  for  business  longevity. 

Bonds  (as  an  Investment) . —  All  investments  should  be 
in  such  securities  that  a  ready  market  can  be  found  at  all 
times.  This  should  be  done  not  only  properly  to  secure  all 
withdrawals  from  the  company,  but  also  so  that  investments 
be  used  as  collateral  acceptable  to  financial  institutions 
should  the  necessity  arise.  Should  a  decision  be  made  for 
the  purchase  of  bonds,  the  standing  of  the  corporation  whose 
bonds  are  to  be  purchased  should  be  investigated  carefully 
both  from  a  financial  point  of  view  of  current  and  future 
business,  and  also  from  the  point  of  view  of  its  past  transac- 
tions in  regard  to  its  meeting  previous  obligations,  bonded 
indebtedness  and  conditions  of  its  stock.  It  should  be 
determined  whether,  in  issuing  bonds,  the  corporation  has 
complied  with  all  the  statute  requirements  and  whether  the 
proper  percentage  has  been  adhered  to  in  relation  to  ics 
capital  and  assets. 

When  bonds  are  purchased  at  par,  the  full  interest  that 
the  bond  carries  is  realized.  However,  if  the  bond  is  bought 
below  par,  not  only  a  greater  interest  but  an  additional 
profit  are  realized,  when  the  face  value  is  paid  upon 
maturity.  In  the  case  where  a  premium  is  paid  for  the 
purchase  of  a  bond,  that  is,  when  bonds  are  bought  above 


BALANCE  SHEET  151 

par,  not  alone  is  the  interest  decreased  but  also  an  addi- 
tional loss  is  accepted  when  the  bond  is  paid  at  its  face 
value  upon  maturity.  Periodically,  all  bonds  should  be 
audited  so  that  their  correct  values  should  appear  on  the 
balance  sheet.  The  purchase  price  should  appear  at  all 
times  and  also  a  reserve  should  be  set  up  for  market  fluctua- 
tions should  the  bonds  have  a  downward  tendency. 

Stock  Investments. —  Where  moneys  are  invested  in 
stocks  of  other  corporations,  the  same  procedure  of  investi- 
gation should  thoroughly  be  gone  into  as  in  the  investment 
of  bonds.  At  no  time  should  stocks  be  purchased  on  a 
part  payment,  better  known  as  "  on  margin."  To  do  this 
would  take  on  a  speculative  aspect  and  the  actual  cash  paid 
would  be  placed  at  the  mercy  of  market  conditions.  All 
stocks  for  investment  purposes  should  be  purchased  out- 
right and  the  actual  amount  paid  for  them  should  appear 
on  the  General  Ledger  under  Stock  Investments.  Where  a 
corporation  has  a  considerable  outside  investment,  in  secu- 
rities, an  investment  record  should  be  kept,  known  as  an 
Investment  Ledger. 

Here  complete  details  as  to  the  description  of  stock  will 
be  recorded  with  the  actual  income  set  up  for  each  particu- 
lar security,  charging  the  income  with  any  brokerage  paid 
at  the  time  of  the  purchase.  A  corporation  declaring  a 
dividend  to  stocksolders  may  only  do  so  out  of  profits 
earned.  Such  sums  should  be  deposited  with  a  banking 
institution  against  which  dividend  checks  will  be  drawn 
to  the  order  of  all  stockholders  of  record. 

Where  a  dividend  has  been  declared  legally,  the  stock- 
holder becomes  a  creditor  to  his  pro  rata  share  according 
to  stock  held.  In  the  matter  of  insolvency  and  a  dividend 's 
having  been  legally  declared  and  set  aside  prior  to  such 
insolvency,  the  stockholder's  equity  in  such  dividend  is 
irrevocable. 


152  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

Dividends. —  Cash  receipts  from  investment  should  not 
be  credited  to  financial  income  from  operations.  To  do  this 
would  be  to  set  up  erroneously  a  profit  accounting  to  opera- 
tions. Dividends  should  be  set  up  under  a  separate  cap- 
tion of  income  preferably  Income  from  Investments.  Where 
a  subsidiary  ledger  for  investments  is  maintained,  the  divi- 
dends should  be  detailed  in  the  various  accounts,  so  that  ail 
annual  statement  may  be  set  up. 

Debenture  Investments. —  As  mentioned  in  the  previous 
chapter,  debentures  take  on  the  same  status  as  notes.  It 
may  be  a  short  term  or  long  term  note,  and  at  best,  its 
investment  is  not  a  highly  recommended  one  unless  secured 
by  tangible  collateral.  Though  short  term  notes  may  vary 
from  sixty  days  to  seven  or  eight  months,  they  are  recog- 
nized as  three  or  six  months'  periods,  and  traded  in  exten- 
sively on  the  open  market. 

The  notes  are  from  such  makers  whose  commercial  rating 
is  recognized  as  a  safe  risk  by  credit  investigators. 

The  greatest  inducement  offered  for  debenture  invest- 
ments is  the  large  percentage  of  interest  and  the  selling  at 
a  price  below  par  as  an  opportunity  for  further  profit  or 
income  at  the  time  of  maturity. 

Investments  of  Reserves. —  Where  funds  set  aside  for 
reserves  are  invested,  all  income  from  such  outside  invest- 
ments should  be  added  to  the  reserve  fund's  principal, 
thereby  increasing  the  fund.  Where  income  is  received 
from  sinking  fund  investment,  which  fund  was  set  up  to 
retire  bonded  debts,  the  income  from  investment  should 
be  used  for  the  same  purpose  as  its  principal.  Investing 
reserves  assumes  the  risk  of  market  fluctuations  and  par- 
ticular care  should  be  taken  in  the  accounting  of  such 
investments.  The  investment  must  be  considered  at  actual 
cost  at  all  times  until  it  has  been  converted  into  cash.  The 
securities  invested  in  must  not  appear  as  an  asset  on  the 
books  of  the  company.  All  records  of  such  investment 


BALANCE  SHEET  153 

should  be  in  a  subsidiary  ledger.  Or  if  that  is  not  suffi- 
cient, the  reserve  funds  being  invested  should  be  detailed 
in  the  general  ledger  under  a  separate  heading  for  each 
investment. 

Investments  in  Other  Companies. —  "Where  the  officers 
of  a  corporation  are  interested  in  other  companies  or  expand 
their  business  enterprises  by  organization  of  new  com- 
panies, such  organizations  will  be  incorporated  under  their 
own  charter  and  by-laws.  This  will  be  done  for  the  reasons 
of  privileges  enjoyed  by  corporations.  Some  companies, 
however,  may  invest  in  another  corporation,  purchasing  a 
block  of  stock.  The  amount  invested  becomes  an  asset  on 
the  books  of  the  company  doing  the  investing.  Any  divi- 
dends received  from  such  investment  must  be  treated  as 
Investment  Income  and  must  not  appear  as  an  income  from 
the  companies'  own  operations.  Should  such  investment 
ultimately  prove  a  loss  by  reason  of  insolvency,  the  loss 
should  be  charged  to  surplus  prior,  providing  that  moneys 
withdrawn  were  originally  from  a  prior  surplus. 

Employees'  Equity  in  Investments. —  There  are  occa- 
sions where  an  organization  will  make  investments  in  which 
the  employees  of  such  an  organization  will  participate.  It 
may  be  in  the  form  of  buying  property  or  it  may  be  invest- 
ments in  stocks  or  bonds.  To  exemplify  this,  an  organiza- 
tion makes  a  purchase  of  $5,000  of  bonds.  The  company 
advances  the  money  and  is  the  owner  of  such  bonds.  How- 
ever, the  employees  make  weekly  payments  to  the  company, 
which  payments  are  reimbursing  the  company  for  the  out- 
lay of  cash  for  the  purchase  of  such  bonds.  "Whereas  the 
company  is  the  holder  of  the  bonds,  the  employees,  through 
their  weekly  payments,  establish  a  lien  on  the  bonds  to  the 
amount  of  their  payments,  thus  creating  an  employees' 
equity  in  bonds. 

In  showing  the  asset  of  bonds  or  investments  where  em- 
ployees may  have  an  equity,  the  full  amount  of  the  invest- 


154  EETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

ment  should  be  stipulated,  likewise  specifying  the  amount 
of  equity  in  such  investments  by  employees  with  a  final  net 
amount  of  investment  on  which  the  employees  have  a  lien. 
This  method  of  employees'  equity  is  very  rare,  but  during 
the  course  of  municipal  or  Federal  requirements,  where  all 
citizens  are  requested  to  participate,  such  occasions  may 
arise.  Others  may  be  where  an  organization  is  pursuing  a 
policy  of  cooperative  methods. 

Fixed  Assets. —  All  investments  in  property,  regardless 
of  its  description,  necessary  for  operation  of  an  enterprise, 
without  which  properties  operations  are  impossible,  or  if 
hired,  would  entail  considerable  extra  cost  for  operations, 
are  termed  fixed  assets.  This  does  not  include  any  part  of 
the  merchandise  or  commodity  an  enterprise  deals  in,  in 
the  course  of  buying  and  selling  or  of  production  and  dis- 
tribution, but  includes  only  property  maintained  by  the 
company  for  its  own  use.  These  fixed  assets  are  subject  to 
depreciation  through  usage,  age  or  natural  causes.  To  pro- 
vide for  depreciation  of  such  assets,  a  reserve  is  created. 
Particular  care  must  be  exercised  in  not  overvaluing  this 
form  of  assets. 

Buildings. —  Investments  in  buildings  in  which  an 
organization  will  conduct  its  affairs  becomes  a  fixed  asset 
of  such  an  organization.  Where  the  land  as  well  as  the 
building  is  owned  by  a  company,  the  value  of  the  land 
should  be  segregated  from  that  of  the  value  of  the  building 
and  should  be  recorded  upon  books  at  the  actual  cost.  The 
general  period  for  the  life  of  the  building  is  estimated  for 
accounting  purposes  to  cover  a  period  of  twenty  years,  giv- 
ing a  depreciation  rate  of  5  per  cent  per  annum.  A  reserve 
should  be  set  up  depreciating  the  value  of  such  building, 
which  depreciation  is  written  off  monthly  and  charged  as  a 
rental  cost  to  the  operating  burden. 

Buildings  never  increase  in  value.  Any  increase  in 
value  of  property  would  refer  to  land  and  not  to  the  build- 


BALANCE  SHEET  155 

ing  itself.  Repairs  to  buildings  required  on  account  of 
usage  or  natural  causes  are  a  direct  charge  to  an  account 
designated  as  "  MAINTENANCE  AND  REPAIRS  "  to  show  the 
up-keep  of  the  building.  But  where  such  improvements  are> 
made  on  the  property  as  additions  to  the  building  or  bridges 
connecting  buildings,  it  is  an  improvement  to  the  property 
and  an  additional  cost  to  such  buildings.  The  fact  that 
property  has  become  more  valuable  in  a  community  should 
not  alter  the  building  accounts.  Each  building  should  be 
known  under  a  separate  account.  Any  improvements 
should  be  applied  to  that  particular  parcel  to  which  the 
improvements  are  applicable.  A  life  period  of  20  years  is 
a  conservative  time  for  department  store  buildings,  when 
it  is  considered  that,  on  account  of  the  hard  usage  to  which 
they  are  put  the  life  of  manufacturing  buildings  is  esti- 
mated for  a  period  of  five  years,  and  seldom  exceeds  ten. 

Insurance. —  Placing  of  insurance  on  buildings  should 
receive  very  close  attention  and  at  least  once  a  month  exam- 
ination of  conditions  existing  in  insurance  records  is  a 
necessity.  Insurance  premiums  against  conflagrations,  like 
many  other  policies,  improve  with  age.  The  older  the 
structure,  the  greater  the  fire  hazard,  and  the  premium 
increase  must  follow.  In  the  event  of  a  conflagration,  when 
a  portion  of  the  building  or  the  entire  building  is  damaged, 
it  is  optional  with  the  insurance  companies  as  to  the  manner 
of  settlement.  These  are  either  to  pay  money,  repair, 
rebuild,  replace  or  adjust  by  sound  value  with  coinsurance. 
The  department  store  should  at  all  times  carry  replacement 
value  insurance,  not  only  for  buildings  but  for  furniture, 
fixtures  and  equipment. 

Fixtures  and  Furniture. —  Fixtures  and  furniture  are 
generally  found  to  be  built  as  part  of  the  building,  and 
the  shelvings  and  counters  become  a  part  of  the  building 
itself.  The  furniture,  show  cases,  and  other  movable  fix- 
tures, while  under  the  hammer,  are  of  very  little  residual 


156  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

value.  The  life  of  the  fixtures  generally  runs  to  a  period 
of  10  years,  of  which  10  per  cent  of  its  value  is  written  off 
yearly  and  charged  to  Operating  Burden.  Additional  fix- 
tures or  furniture  required  should  be  charged  to  Operating 
Burden  rather  than  be  carried  as  a  Fixed  Asset  upon  the 
books  of  the  company.  The  income  tax  laws  do  not  permit 
this.  However,  it  may  be  added  to  fixture  account  under 
the  maximum  of  depreciation  limit. 

A  reserve  for  depreciation  may  be  set  up  so  that  at  the 
expiration  of  ten  years,  when  fixtures  may  be  replenished, 
there  will  be  a  sufficient  reserve  for  the  installation  of  new 
fixtures  and  furniture. 

Insurance  to  cover  should  at  all  times  be  on  the  replace- 
ment value.  Many  organizations,  after  having  the  value  of 
the  fixtures  written  off,  will  carry  a  fixed  asset  of  furniture 
and  fixtures  at  one  dollar. 

Delivery  Equipment. —  Perhaps  no  other  business 
organization  has  the  extensive  carrying  equipment  of  the 
department  stores.  The  delivery  becomes  a  very  important 
factor  since  success  of  the  store  depends  greatly  upon  serv- 
ice which  it  renders  its  patrons. 

The  delivery  equipment  may  be  of  various  descriptions. 
Formerly  the  horse  and  wagon  and  heavy  truck  were 
used  extensively,  and  it  was  necessary  for  most  stores  to 
conduct  their  own  stables,  the  up-keep  of  which  was  a 
direct  charge  to  delivery  expense.  In  the  world  of  mod- 
ernization, more  rapid  strides  have  been  made  in  efficiency. 
A  better  service  has  been  found  by  supplanting  the  horse 
and  wagon  delivery  by  the  automobile. 

The  value  of  these  automobile  delivery  cars  and  heavy 
trucks  runs  into  large  proportions.  However,  the  usage 
to  which  they  are  put  requires  that  depreciation  does  not 
exceed  three  years.  A  reserve  for  delivery  equipment 
should  be  set  up  carefully,  and  its  replacement  by  new 
trucks  is  chargeable  to  the  reserve  for  delivery  equipment. 


BALANCE  SHEET  157 

This  is  a  fixed  asset  and  should  appear  as  such  on  the  bal- 
ance sheet.  A  record  of  the  complete  delivery  equipment 
should  be  kept  so  that  a  detailed  statement  for  up-keep 
and  results  obtained  by  each  automobile  is  readily  obtain- 
able. This  is  a  necessity  for  statistics  in  the  control  of  the 
store  Burden,  since  an  excessive  cost  for  package  delivery 
will  require  investigations  and  revisions  in  the  Delivery 
Department. 

.  Sinking  Fund. —  The  purpose  of  a  sinking  fund  may 
be  described  as  providing  for  meeting  obligations  such  as 
mortgages,  bonded  debts,  retirement  of  preferred  stocks. 
Funds  of  this  nature  have  been  set  up  for  other  purposes. 
Cash  set  aside  for  sinking  fund  must  be  received  from 
profits.  Investments  of  sinking  fund  result  in  additional 
profits  which  are  applicable  to  the  sinking  fund.  At  the 
time  that  the  sinking  fund  is  applied  for  the  object 
intended,  any  balance  remaining  must  be  credited  to  sur- 
plus account,  or  it  may  be  declared  as  an  additional  divi- 
dend. 

The  sinking  fund  must  always  be  an  asset,  set  up  in  a 
class  by  itself.  Should  the  fund  be  distributed  to  various 
investments,  such  investments  should  appear  in  detail  on 
the  balance  sheet.  A  sinking  fund  of  large  proportions 
which  has  been  invested  extensively  in  securities,  should  be 
detailed  on  a  supporting  statement  for  the  single  item  of 
sinking  fund  appearing  on  the  balance  sheet.  Impersonal 
accounts  should  be  kept  in  the  general  ledger  under  the 
caption  of  sinking  fund  operating  accounts,  in  which  will 
be  found  expenses  detailed,  income,  discounts,  commis- 
sions, trustees  of  the  fund,  in  fact,  any  item  pertaining  to 
the  sinking  fund  operations. 

Should  a  company  desire  to  set  up  a  provision  for  a  sink- 
ing fund,  a  distinction  must  immediately  be  made  between 
depreciation  and  the  intent  of  the  sinking  fund.  Depre- 
ciation is  a  direct  charge  to  profits,  whereas,  moneys  set 


158  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

aside  for  a  sinking  fund  should  be  transferred  after  all 
operation  charges  have  been  determined  and  deducted  from 
income.  Otherwise,  the  charges  to  expense  may  be* 
doubled.  Where  a  reserve  fund  is  provided  to  meet  a 
bonded  debt,  such  reserve  may  be  set  up  by  charging  sur- 
plus account  and  crediting  sinking  fund  reserve  or  reserve 
for  redemption  of  bonds. 

Where  the  reserve  is  not  charged  to  surplus,  but  a  sink- 
ing fund  is  established  to  meet  a  bonded  indebtedness,  such 
a  fund  may  appear  on  the  liability  side  of  the  balance  sheet 
by  showing  the  amount  of  bonded  indebtedness  less  the  sink- 
ing fund,  which  would  be  better  termed  "  EEDEMPTIOTST 
FUND  FOR  BONDED  DEBT." 

Mortgages. —  Mortgages  as  an  investment  should 
receive  every  legal  attention  that  is  required.  The  title  of 
a  property  should  be  examined  thoroughly  and,  wherever 
possible,  a  guarantee  that  the  owner  who  receives  the  mort- 
gage has  a  clear  title  should  be  guaranteed  by  responsible 
individuals  or  corporations.  The  mortgagor  should  at  all 
times  receive  periodically  all  paid  tax  bills,  such  as  water, 
land  or  any  other  bills  placed  against  property  by  the  city 
in  which  the  property  is  located.  The  reason  for  this  is 
that  unpaid  tax  bills  become  a  prior  lien  on  the  property 
and  such  prior  lien  takes  precedent  over  a  mortgage, 
whether  that  mortgage  be  first,  second  or  third.  In  the 
case  of  any  plumbing  work  or  painting  or  any  improve- 
ments made  upon  the  property  for  which  payment  has  not 
been  made,  the  mechanics  making  such  improvement  on 
the  property  have  the  privilege  of  filing  a  lien  against  the 
building.  Such  property  can  be  disposed  of  when  selling 
the  property  under  the  hammer  to  satisfy  the  mortgage  or 
other  form  of  sale.  But  this  lien,  known  as  a  mechanics' 
lien,  must  be  satisfied  before  a  clear  title  of  ownership 
can  be  given.  The  filing  of  liens  against  the  property  or 
any  improvement  made  on  it  are  subject  to  the  statute  of 


BALANCE  SHEET  159 

the  municipality,  and  are  sometimes  governed  by  the  state 
laws. 

The  variation  of  first,  second  or  third  mortgages  implies 
that  the  first  mortgage  has  a  prior  lien  on  the  value  of  the 
property  to  the  second  mortgage,  and  the  second  mortgage 
has  a  prior  lien  to  that  of  the  third.  This  can  be  compared 
readily  with  first  mortgage  bonds  or  second  mortgage 
bonds,  and  so  on.  In  the  event  of  two  mortgages  on  a  prop- 
erty and  foreclosure  procedure  having  been  instituted  to 
set  judgment,  the  property  having  been  placed  under  the 
hammer,  all  moneys  received  will  be  used  to  satisfy  the 
first  mortgage  and  legal  disbursements.  What  is  left  will 
be  given  to  second  mortgagor,  and  so  on  down  the  line  till 
all  mortgages  are  satisfied  and  all  cash  obtained  by  auction 
has  been  absorbed.  It  can  readily  be  seen  from  such  cir- 
cumstances that  mortgages  carried  as  an  asset  upon  the 
books  of  a  company  should  be  mortgages  that  are  absolutely 
clear  from  every  lien,  and  that  can  be  converted  into  cash 
without  considerable  legal  procedure  to  satisfy  any  incum- 
brance  upon  the  property  for  which  the  mortgage  is  held. 

Machinery. —  There  does  not  seem  to  be  any  occasion 
for  department  stores  having  any  fixed  asset,  such  aa 
machinery,  since  they  are  not  manufacturing  organizations. 
Still  there  may  be  certain  classes  of  machinery  necessary 
for  the  engine  rooms.  Conveyors  in  the  delivery  depart- 
ment may  be  operated  from  power  generated  by  the  com- 
pany's own  machinery.  Such  machinery  takes  on  the  same 
aspect  as  any  other  equivalent  machinery  used  in  manu- 
facturing plants,  excepting  such  as  is  used  for  the  produc- 
tion of  a  commodity  where  the  hour  unit  may  be  applicable. 
The  life  of  a  machine  varies  in  accordance  with  its  uses  and 
its  construction.  It  may  be  anything  from  two  to  five 
years. 

A  reserve  should  be  set  up  making  provision  for  replace- 
ment when  such  machinery  becomes  obsolete.  The  cost  of 


160  EETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

its  up-keep  is  chargeable  to  that  department  of  burden  to 
which  the  machinery  in  use  is  applicable. 

Land. —  All  investments  made  in  land,  whether  or  not 
an  improvement  has  been  made  on  it  in  the  form  of  a 
structure,  should  appear  at  cost.  The  fact  that  land  pur- 
chased and  held  for  a  particular  period  increases  in  value 
should  not  be  sufficient  reason  to  change  the  value  as  a  fixed 
asset.  For  it  is  reasonably  argued  that,  if  land  had  been 
purchased  at  a  specific  price  and  held  for  a  number  of 
years,  at  the  end  of  that  time  the  amount  sold  for  will 
give  a  handsome  profit  to  the  owner.  Such  profit  is  actu- 
ally made  when  the  land  is  sold.  The  mere  fact  that  all 
surrounding  land  has  enhanced  in  value  is  not  sufficient 
reason  to  correct  the  cost  of  the  land  paid. 

Where  a  number  of  properties  are  owned  by  an  organiza- 
tion, it  is  advisable  to  allow  for  a  separate  ledger  page 
account  for  each  property,  giving  the  cost  paid  for  it  and 
a  full  description  of  its  location  and  the  particulars  apper- 
taining to  such  land.  In  addition  a  separate  record  should 
be  kept  for  each  property  held,  upon  which  will  be  entered 
the  various  taxes  paid  for  the  up-keep  of  such  land.  Where 
improvements  have  been  made  upon  the  property,  such  as 
a  structure,  any  taxes  paid  to  the  municipality  are  charge- 
able as  a  rental. 

Deferred  Assets. —  Assets  under  this  caption  are  closely 
allied  to  current  assets.  Though  they  are  prepaid  expenses 
for  operating  burden,  it  should  not  be  interpreted  that 
realizable  cash  will  supplant  these  assets  and  revert  itself 
to  current  assets.  There  may  occur  in  the  course  of  busi- 
ness an  outlay  of  cash  such  that,  while  it  is  chargeable  to 
burden  prepaid,  a  default  may  revert  to  current  assets.  In 
such  instances,  all  conditions  surrounding  the  prepaid 
expenditures  should  be  considered  prior  to  enumerating 
such  assets  as  deferred.  Usually  a  deferred  charge  to  bur- 
den covers  a  period  of  many  months.  Because  of  this,  the 


BALANCE  SHEET  161 

monthly  writing  down  is  resorted  to  for  an  equitable  dis- 
tribution. 

Prepaid  Advertising. —  An  item  seldom  appears  as  a 
deferred  asset  for  prepaid  advertising,  but  where  a  store 
issues  a  catalogue,  which  catalogue  covers  a  period  of  sev- 
eral months,  the  prepaid  cost  for  advertising  will  be  carried 
as  a  deferred  asset  and  the  value  of  the  catalogue  will  be 
written  off  monthly  covering  the  life  of  such  issue. 

In  mail  order  houses  where  a  catalogue  is  issued  to  cover 
a  period  of  six  months,  the  entire  cost  of  the  catalogue  will 
be  carried  as  a  prepaid  asset.  The  value  of  the  catalogue 
during  the  first  month  of  its  issue  will  be  greater  than  the 
following  five  months.  The  second  month  of  its  issue  will 
be  greater  than  the  next  succeeding  four  months,  and  so  on 
•until  the  entire  six  months  are  absorbed.  The  last  month 's 
cost  of  advertising  may  be  as  low  as  only  3  per  cent  of  the 
original  cost  of  the  catalogue,  whereas  the  first  month  may 
be  charged  to  Operating  Burden  as  high  as  35  per  cent  of 
its  total  cost  of  advertising. 

The  contracts  made  for  advertising  matter  Tor  pro- 
grammes, posters,  placards,  traveling  conveyances  or  other 
displays  may  be  treated  as  a  deferred  asset  and  periodic- 
ally charged  off.  Careful  consideration  must  be  given  to 
an  equitable  diminution  of  such  charges  to  operating  bur- 
den  under  the  caption  of  advertising  cost,  considering  at 
all  times  that  the  advertising  matter  at  the  early  stages 
of  its  issue  or  display  is  more  valuable  than  at  its  latter 
period. 

This  logic  is  only  applicable  to  the  monthly  writing  #n* 
at  the  prepaid  contract  or  prepaid  outlay  for  advertising 
matter.  A  department  store  may  have  placards  with  it3 
store  advertising  matter  distributed  in  various  outlying  dis- 
tricts of  the  town  in  which  it  is  situated.  Usually  there  is 
a  monthly  charge  for  such  placards  where  space  is  hired 
from  a  bill  posting  company.  As  these  invoices  are 


162  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

paid  monthly,  it  would  be  charged  directly  to  advertising. 
iWhere  the  payment  is  paid  for  a  year  in  advance,  an 
equitable  distribution  must  of  necessity  occur.  Usually, 
such  distribution  may  be  l/12th  of  its  actual  cost  for  the 
year,  as  the  placards  may  be  changed  with  such  advertis- 
ing matter  as  may  be  appropriate  for  the  season  of  the 
year. 

Prepaid  Rents. —  It  is  customary  for  all  rents  to  be 
paid  in  advance.  This  may  either  be  on  the  first  of  the 
month  or  during  any  part  of  the  month.  "Where  a  pay- 
ment is  made  during  the  month  for  the  benefit  of  the 
monthly  balance  sheet,  unexpired  rent  becomes  a  deferred 
asset  and  should  be  so  stated  upon  the  books  of  the  com- 
pany. Such  deferred  assets,  however,  must  be  reversed 
promptly  after  the  balance  sheet  is  drawn  off.  Rents,  how- 
ever, that  are  due  the  company  from  property  or  leaseholds 
owned  by  the  company  or  from  such  tenants  as  may  occupy 
departments,  must  not  be  treated  as  a  deferred  asset  but 
as  a  current  asset. 

Sublet  Departments. —  There  are  many  department 
stores  or  retail  stores  of  any  description  who  may  sublet  a 
portion  of  their  store  to  outside  persons,  who  will  conduct 
a  department,  usually  paying  from  10  to  30  per  cent  of  its 
sales  as  a  rental.  This,  in  the  last  decade,  has  become  very 
common  throughout  the  country.  The  departments  gener- 
ally sublet  are  Millinery,  House  furnishings,  the  Optical 
Department,  Men's  and  Boys'  clothing  and  Restaurants. 

It  must  be  confessed  that  where  a  department  store  sub- 
lets a  department  to  an  outsider,  it  Js  usually  for  the  rea- 
son that  the  management  was  unable  to  conduct  that 
department  successfully.  This,  however,  is  not  always  the 
case.  A  store  will  sometimes  sublet  space  for  a  depart- 
ment. Perhaps  the  store  had  never  conducted  such  a  depart- 
ment before  or,  for  the  want  of  sufficient  capital,  prefers 
to  sublet  a  section  of  the  premises  to  outsiders.  The  10 


BALANCE  SHEET  163 

to  30  per  cent  charges  paid  by  the  sublet  department  cover 
all  stationery,  light,  heat,  window  display,  cashier's  and 
wrapping  services,  delivery  services,  in  fact  will  cover  all 
charges  with  the  exception  of  advertising  and  clerk  hire. 
The  clerk  hire  here  refers  to  direct  selling  help,  and  some- 
times to  delivery  cost. 

Prepaid  Interest. — When  notes  have  been  discounted, 
for  which  the  interest  has  been  paid  in  advance,  such  inter- 
est should  be  carried  as  a  Deferred  Asset,  and  monthly 
written  off  to  an  account  known  as  "  interest  paid  up." 
Prepaid  interest  might  not  be  for  notes  alone,  but  may 
apply  to  advances  in  either  cash  or  merchandise.  Where 
notes  receivable  have  been  discounted,  the  interest  prepaid 
should  appear  under  this  caption,  not  forgetting  that  a  lia- 
bility is  to  be  set  up  for  the  account,  known  as  Accounts 
Receivable  Discounted. 

Prepaid  Salaries. —  There  is  not  much  to  say  about  pre- 
paid salaries.  Very  seldom  are  salaries  paid  in  advance 
to  any  extent  that  makes  it  necessary  to  set  up  a  deferred 
item.  However,  there  are  administrative  salaries  which 
may  be  paid  several  months  in  advance,  depending  upon 
circumstances.  On  such  occasions  the  deferred  asset  should 
be  set  up  with  a  periodic  reduction  until  the  entire  prepaid 
salaries  are  charged  to  burden  operation,  and  to  whatever 
particular  burden  such  advances  in  salaries  are  applicable. 

Good  Will. —  As  a  tangible  asset  for  a  basis  of  credit 
good  will  has  no  value.  On  the  balance  sheet  it  will  appear 
classified  by  itself.  Good  will  in  its  relations  to  the  depart- 
ment store  receives  its  value,  first,  from  the  source  of  adver- 
tising; second,  from  the  value  of  merchandise,  and  third, 
from  the  service  which  it  renders  its  patrons.  It  is  obvious 
that  good  will  can  only  be  established  where  good  manage- 
ment is  paramount.  It  can  only  be  subordinated  by  the 
three  elements  necessary  to  make  the  store  a  home  topic 
of  reliability  when  personal  requirements  become  neces- 


164  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

sary.  Not  only  are  the  elements  thus  far  mentioned  essen- 
tial to  create  a  good  will,  but  every  coworker  must  feel  it 
incumbent  upon  himself  at  all  times  to  further  the  interest 
of  his  store,  whether  in  the  premises  or  out.  A  going  con- 
cern which  has  organized  a  store  will  not  carry  a  good  will 
account.  A  corporation  enjoying  the  confidence  of  its  com- 
munity in  order  to  further  its  own  personal  interests,  may 
issue  bonds  or  stocks  or  both  and  create  a  good  will  account, 
to  be  within  the  statute  limitations.  To  do  this,  earnings 
should  be  of  such  proportions  that  a  good  will  can  be  sub- 
stantially supported  by  its  past  and  present  earning  power 
and  by  a  reasonable  assurance  for  its  future,  which  at  best 
can  have  no  guarantees.  The  entire  transaction  is  open  for 
criticism.  A  purchaser  of  the  business  may  open  a  good 
will  account  for  which  good  name  of  the  store  a  premium 
has  been  paid.  Such  good  will  should  be  represented  at 
actual  cost,  which  has  been  computed  from  its  earning 
power,  after  considering  capital  interest  of  both  cash  and 
personal  services. 

It  may  be  that  the  new  management  is  capable  of  con- 
tinuing the  good  name  of  the  store  in  the  community  and 
even  enhancing  its  value,  in  which  event  good  will  may  be 
carried  as  a  temporary  asset.  Where  the  earning  power 
decreases  and  even  losses  are  taken,  good  will  of  necessity 
must  diminish.  It  may  be  argued  that  a  going  concern 
whose  good  will  account  does  not  fluctuate  by  reasons  of  its 
excess  of  normal  profits  should  permit  the  good  will  to 
remain  at  its  cost  as  an  asset  on  the  balance  sheet.  It  is 
doubtful  whether  any  Board  of  Directors  or  owner  of  a 
department  store,  exercising  good  judgment  and  commer- 
cial requisites,  would  permit  good  will  to  remain  longer 
than  necessary.  To  eliminate  good  will,  a  secret  reserve 
will  be  set  up  and  periodically  written  off. 

Judgments  as  an  Asset. —  It  may  seem  unusual  for  such 
an  account  to  appear  on  a  balance  sheet.  If  a  judgment 


BALAXCE  SHEET  165 

is  taken,  it  may  either  be  for  Accounts  ^Receivable  or  per- 
haps for  damages  or  for  some  claim  terminated  from  legal 
procedure.  If  a  judgment  is  for  accounts  receivable,  ac- 
counts receivable  should  be  reduced  to  the  open  account 
and  the  amount  of  the  judgment  received  should  appear  as 
an  asset  upon  the  books  of  the  company.  Like  the  good  will 
account,  judgments  are  in  a  class  by  themselves.  If  a  judg- 
ment is  one  that  is  collectable,  it  is  worth  while  having  such 
judgment  appear  as  an  asset  for  it  is  reasonable  to  argue 
that  such  judgment  will  be  paid  with  interest  at  some 
future  day.  "Where  a  judgment  is  secured  for  default  of 
contract  or  damages  or  from  any  source  whatever,  such 
judgment  held  by  the  store  should  appear  as  an  asset  on 
the  balance  sheet.  Its  offsetting  entry  depends  upon  cir- 
cumstances upon  which  the  judgment  was  received. 

Once  a  judgment  has  been  rendered,  every  legal  right  for 
the  judgment  creditor  to  have  such  judgment  appear  on 
the  balance  sheet  is  within  the  scope  of  every  logical  rea- 
son. It  maybe  that  the  judgment  is  under  an  appeal. 
Until  a  reversed  decision  has  been  rendered,  the  judgment 
should  not  be  removed.  The  various  states  of  the  union 
give  a  certain  life  to  each  judgment,  varying  as  much  as 
twenty  years.  In  some  states,  these  may  be  renewed. 
However,  before  placing  a  judgment  upon  a  balance  sheet, 
all  circumstances  connected  with  it,  with  all  prospects  of 
eventually  receiving  payment,  should  be  considered  care- 
fully. 

Prepaid  Insurance. —  An  account  provided  for  pay- 
ments of  Insurance  Premiums  are  either  prepaid  insurance 
premiums  or  insurance  premiums  paid  up.  A  premium 
as  designated  here  in  relation  to  fire  indemnifies  the  assured 
for  the  loss  of  property  by  fire,  the  premium  being  based  on 
the  fire  hazard.  It  is  customary  to  set  up  both  aforemen- 
tioned accounts  in  the  general  ledger,  debiting  prepaid 
insurance  premiums  with  the  payment  of  all  insurance  pre- 


166  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

miums  excepting  life  insurance,  and  by  prorating,  writing 
off  the  monthly  expirations  of  premiums  to  the  account  of 
insurance  paid  up.  Though  it  is  admitted  that  a  premium 
of  $144  for  one  year  is  written  off  of  the  rate  of  $12  a 
month  for  each  month  of  the  year  while  the  insurance  is  in 
force,  a  cancellation  of  the  policy  at  the  end  of  the  first 
month  will  not  give  a  credit  for  unexpired  insurance  for 
$132.  Insurance  companies  will  make  their  charge  at  the 
short  term  rate. 

In  the  liquidation  of  a  business,  the  balance  sheet  should 
show  short  term  rates  in  the  prepaid  insurance  account. 
It  may  be  argued  by  accountants  that  unexpired  insurance 
in  a  going  concern  is  a  current  asset  and  not  a  deferred 
asset.  It  is  admitted  that  a  cancellation  of  all  unexpired 
insurance  can  be  converted  into  cash  and  that  such  prepaid 
insurance  has  a  cash  value,  but  a  going  concern  would 
jeopardize  its  best  interests  not  to  carry  insurance,  nor 
could  the  credit  world  accept  an  insurance  account  as  a 
current  asset  and  determine  its  value  as  a  credit  risk.  The 
insurance  premium  may  be  written  off  at  once  to  the  cur- 
rent month's  operations,  but  to  do  so  would  burden  the 
month  that  the  insurance  was  paid  and  create  an  unequit- 
able distribution  in  the  accounting  of  burden.  The  de- 
ferred charges  are  set  up  for  periodic  charges  to  operations. 
The  amounts  of  insurance  carried  vary  with  the  inventory, 
though  it  is  necessary  for  merchandising  reasons  to  know 
the  stock  in  trade  daily  in  all  departments.  It  should  like- 
wise receive  careful  attention  to  support  loss  settlements  in 
adjusting  a  fire  claim. 

All  premiums  should  be  carried  in  the  accounts  herein 
mentioned  covering  fire,  liability,  theft,  boiler,  sprinkler, 
leakage,  tornado,  accident,  automobile,  etc.  Automobile 
insurance  is  a  direct  charge  to  delivery  expense,  and  in 
writing  of  expired  premiums  such  premium  should  be 
credited  to  prepaid  insurance  and  debited  to  delivery  cost 


BALANCE  SHEET  167 

under  its  insurance  account.  Likewise,  with  all  other 
insurance,  its  distribution  is  applicable  to  that  division  of 
the  store  burden  to  which  it  refers. 

Contracts. —  In  manufacturing  organizations  and  con- 
struction concerns  a  contract  may  cover  a  period  of  years 
or  run  beyond  the  fiscal  year.  Stockholders  or  financial 
interests  may  demand  a  share  of  the  profits  from  the  work- 
in-process.  An  estimate  of  the  profits  accrued  will  be 
determined  after  ample  provisions  have  been  made  for 
reserves.  The  amount  of  profits  estimated  will  then  be 
added  to  the  uncompleted  work  to  show  the  value  of  unfin- 
ished contract  in  inventory,  work-in-process  or  unfinished 
stocks,  as  the  circumstances  warrant. 

However,  department  stores  do  not  come  in  for  such 
transactions.  They  may  enter  into  contracts  for  fittings 
and  furnishings,  chattels,  apartments,  floor  coverings  and 
furniture.  These  contracts  are  treated  as  sales.  Other 
contracts  entered  into  affecting  the  financial  status  of  the 
store  should  have  provision  for  reserve  set  up  to  meet  any 
contingent  liability. 

Collateral. —  Contracts  entered  into  between  a  store 
and  an  individual  partnership  or  corporation  may  require 
such  parties  to  furnish  collateral  to  secure  the  covenants 
of  any  agreement.  This  should  not  for  a  moment  be 
interpreted  as  that,  for  any  agreement,  which  a  department 
store  may  make,  collateral  is  necessary.  It  may  also  be 
required  where  charge  accounts  necessitate  collateral  to 
secure  the  open  account.  Such  collateral  may  be  in  the 
form  of  stocks,  bonds,  cash  or  a  certificate  of  deposit  It 
may  even  be  to  the  extent  of  an  assignment,  a  chattel,  or  a 
mortgage  on  real  estate,  all  depending  upon  the  propor- 
tions the  account  will  be  permitted  to  attain. 

The  fact  that  a  store  becomes  a  custodian  for  such  col- 
lateral does  not  give  permission  for  the  store  to  use  such 
collateral  in  trade  for  any  purpose.  However,  in  the  event 


168  KETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

of  a  default  of  the  agreement  or  an  uncollectable  account, 
the  securities  may  be  appropriated  by  the  store.  As  long 
as  the  store  holds  such  collateral,  it  must  appear  upon  the 
assets  of  the  company  and  should  be  offset  by  a  like  amount 
of  liability  to  be  known  as  COLLATERAL  REDEMPTION  LIA- 
BILITY. While  the  asset  amount  is  equivalent  to  the  liabil- 
ity, the  true  facts  must  appear  on  the  balance  sheet  to  off- 
set any  misapplication  of  the  securities  held  in  trust  as 
collateral. 


CHAPTER  VII 

BALANCE  SHEET  LIABILITIES 

Current  Liabilities. —  Liabilities,  termed  Current,  are 
Accounts  Payable,  regardless  of  their  nature,  and  Notes 
Payable.  In  addition  to  these  may  be  any  liability  for  the 
payment  of  which  a  stipulated  period  is  given,  usually  not 
exceeding  the  limits  of  one  year.  The  accounts  payable 
must  be  liquidated  at  an  expiration  period,  generally 
under  such  terms  of  purchase  as  are  customary  in  the  trade. 
However,  all  current  liabilities  are  such  as  must  be  paid 
for  within  trade  terms  obligated  by  the  debtor.  Long  term 
obligations  covering  a  period  of  years  cannot  be  designated 
as  Current  Liabilities  until  maturity,  liabilities  of  this  kind 
being  termed  Fixed  Liabilities.  Where  notes  are  given  for 
borrowed  moneys,  or  for  merchandise  purchases,  or  for 
other  purposes,  the  listing  of  such  obligations  should  be 
segregated  on  the  balance  sheet. 

A  corporation  dealing  extensively  with  notes  should  set 
up  monthly  a  detailed  statement  of  its  entire  notes  payablei 
account,  chronologically  arranged  to  support  the  balance 
sheet. 

Accounts  Payable  Merchandise. —  The  department 
store's  ledgers  of  accounts  payable  are  probably  more 
extensive  than  most  business  organizations,  since  its  deal- 
ings are  so  varied.  Also  the  number  of  creditors  and  new 
creditors  is  numerous  and  constantly  increasing.  How 
extensive  this  is  is  shown  by  the  author's  experience  in  the 
position  of  Comptroller  with  an  organization.  Payments 
were  made  every  fortnight  and  the  number  of  checks  issued 
varied  from  three  to  four  thousand.  Though  the  smaller 
stores  experience  not  a  little  difficulty  in  keeping  a  clear 

169 


170  KETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

record  of  their  accounts,  ordinary  bookkeeping  may  not 
conceive  any  idea  why  difficulties  should  be  experienced. 

However,  merely  a  purchase  in  a  department  store  and 
a  payment  is  not  sufficient.  All  accounts  must  be  followed 
up  to  ascertain  whether  the  product  of  the  creditor  is  a 
paying  one  to  'the  store,  or  whether  mark  downs  are  neces- 
sary to  make  it  move.  If  a  creditor's  merchandise  is  such 
that  too  many  mark  downs  have  been  taken,  the  merchan- 
dise manager  must  be  acquainted  with  the  result  so  that 
this  particular  creditor  will  be  eliminated.  "With  a 
creditor  of  extensive  liabilities,  conditions  surrounding  the 
extensiveness  may  require  investigation.  Along  with  these, 
any  number  of  reasons  for  investigation  come  up  from 
time  to  time.  Thus,  special  attention  is  given  to  Accounts 
Payable  aside  from  the  fact  that  a  cash  obligation  is  to  be 
met.  Merchandising,  the  prime  factor  of  the  store,  receives 
its  source  from  these  accounts,  and  very  often  an  inventory 
•will  be  checked  for  authentic  purposes. 

The  controlling  account  of  the  general  ledger,  which  is 
also  recognized  as  the  Accounts  Payable  Account,  should 
account  for  every  invoice  purchased.  This  may  be 
checked  back  by  a  verification  with  the  orders  placed  for 
merchandise  and  the  expected  volume  to  be  received  dur- 
ing the  current  month.  The  control  of  the  outstanding 
orders  for  merchandise  will  assist  in  securing  this  informa- 
tion. The  question  of  accounts  payable  resolves  itself  to 
the  credit  standing  of  the  store.  It  is  the  equivalent  of 
borrowing  money  in  another  form,  thereby  increasing  the 
circulating  capital.  Notes  given  for  the  closing  of  an 
accounts  payable  account  must  be  debited  immediately  to 
the  account  and  credited  to  notes  payable  account. 

Memorandum  and  Consignments. —  Buyers  are  classi- 
fied help  particularly  skilled  in  a  specific  class  of  merchan- 
dise which  they  purchase,  whose  sale  they  promote.  The 
regrettable  feature  with  the  majority  of  buyers  is  that 


BALANCE  SHEET  LIABILITIES  171 

though  they  may  be  good  buyers  they  generally  are  found 
to  be  poor  business  men  or  business  women.  This  is  read- 
ily understood  from  the  fact  that  they  have  devoted  most 
of  their  time  to  obtaining  an  exceptional  knowledge  of  mer- 
chandise. They  have  only  occasionally  picked  up  a  bit  of 
commercialism.  Thus,  we  find  the  necessity  in  department 
stores  for  exceptional  men  to  be  skilled  as  general  man- 
agers, merchandise  men  and  accountants. 

The  buyers  may  make  agreements  with  a  manufacturer 
to  ship  the  store  an  amount  of  merchandise  on  memoran- 
dum for  a  stipulated  time.  If  the  merchandise  sells  the 
invoice  will  be  paid  for.  If  part  is  sold,  the  balance  is  re- 
turned and  the  part  kept  is  paid  for.  Though  this  does  not 
seem  to  conform  with  trade  carried  on  in  other  businesses, 
the  fact  remains  that  consignments  of  merchandise  along 
these  lines  are  a  common  occurrence. 

The  accounting  to  control  situations  of  this  kind  must  not 
be  slighted.  No  loose  records  should  be  tolerated.  Trans- 
actions of  this  sort  should  be  treated  as  accounts  payable, 
and  added  to  the  inventory  at  the  prices  invoiced.  When 
the  merchandise  is  returned,  the  regular  charge  back  (or 
debit  charge) — the  term  commonly  applied  for  return, 
merchandise  —  is  applied  in  the  same  manner  as  to  other 
stocks  returned  to  manufacturers. 

In  addition  to  the  aforementioned  procedure,  a  record 
of  all  consignments  or  memorandum  merchandise  should  be 
kept  and  known  as  "  CONSIGNMENT  ACCOUNTS  PAYABLE." 
This  record  is  for  the  office  to  follow  up  in  determining  the 
ultimate  results  and  disposition  of  such  stocks. 

Miscellaneous  Accounts  Payable. —  Under  this  caption 
may  appear  all  accounts  not  referring  to  merchandise  in 
which  the  store  carries  on  in  trade.  All  purchases  for  bur- 
den usage  would  come  within  its  scope.  Most  organiza- 
tions will  draw  a  distinction  between  accounts  payable  for 
merchandise  and  miscellaneous  accounts  payable  by  two 


172  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

separate  records  appearing  as  accounts  payable  merchan- 
dise and  accounts  payable  expense.  In  the  department 
store  as  well  as  in  most  businesses,  good  accounting  will 
require  this  segregation.  The  burden  register  previously 
described  will  find  its  ledger  accounts  in  the  expense  or 
burden  payable  ledger,  which  distribution,  chargeable  to 
operating  burden,  is  departmentized. 

There  may  be  other  accounts  payable  which  spring  up 
during  business  procedure  that  will  not  appear  in  the  bur- 
den or  merchandise  payable  ledger.  Such  accounts  will 
then  find  their  way  from  circumstances  in  the  general 
ledger  and  must  appear  under  that  classification  of  lia- 
bilities to  which  they  rightfully  belong.  This  generally  is 
current  liabilities. 

Notes  Payable. —  All  borrowed  money  for  which  a  note 
has  been  given,  and  notes  given  for  any  purpose  which  the 
company  has  promised  to  pay,  become  a  liability  and  must 
appear  as  such  on  the  balance  sheet.  Where  notes  are  given 
to  cover  Accounts  Payable,  accounts  payable  should  be 
reduced  to  the  amount  of  the  note  and  the  notes  payable 
increased.  The  interest  increased  thereon  is  not  a  part  of 
either  account,  and  should  appear  in  the  accrued  interest 
account,  which  will  be  calculated  monthly  during  the  term 
of  the  notes  to  its  maturity. 

Short  term  notes  may  be  issued  by  a  store  with  or  with- 
out collateral.  Or  the  notes  may  be  accepted  by  the  public 
by  virtue  of  the  organization's  good  name  or  commercial 
rating.  Sometimes  underwriting  makes  this  practice  a 
costly  one.  Short  term  notes  may  be  issued  for  three  or  six 
months.  When  maturity  arrives  they  are  paid  for  in  cash 
or  bonds  or  other  securities  issued  by  the  maker  of  the 
notes.  The  larger  department  stores  may  resort  to  this 
method  of  financing  their  business,  but  it  is  a  rare  occur- 
rence. Long  term  notes  may,  however,  be  issued,  but  this 
will  be  done  in  the  form  of  bonds  or  debentures. 


BALANCE  SHEET  LIABILITIES  173 

Collateral  Notes. —  Collateral  Notes  are  those  for  which 
value  received,  the  principal,  and  the  interest  are  payable 
at  a  designated  bank.  At  this  bank  the  maker  of  the  note 
has  deposited  a  collateral  security.  At  the  option  of  the 
bank,  such  collateral  can  be  converted  into  cash  upon 
the  non-payment  of  the  note  at  maturity.  The  col- 
lateral on  deposit  with  a  bank  may  be  changed  from  time 
to  time,  though  only  upon  the  consent  of  the  bank,  when 
such  provision  has  been  made  at  the  time  the  collateral 
notes  are  issued. 

The  general  custom  of  borrowing  money  on  notes  by 
department  stores  and  most  businesses  is  done  to  meet  obli- 
gations at  maturity  in  order  to  take  advantage  of  disi 
counts.  Often  foresight  of  a  rising  market  on  certain  com- 
modities may  warrant  borrowing  money,  where  an  organi- 
zation finds  itself  temporarily  short. 

Accrued  Liabilities. —  All  expenses  that  have  accrued 
but  are  unpaid  for  should  appear  under  Current  Liabili- 
ties in  setting  up  the  balance  sheet,  whether  the  balance 
sheet  is  for  the  ending  of  the  fiscal  year  or  merely  the 
regular  monthly  statement.  These  accruals,  when  formu- 
lated on  the  journal  vouchers,  should  be  reversed  the  fol- 
lowing month,  with  the  exception  of  Reserve  for  Taxes, 
buyers'  premiums  and  interest.  All  other  accruals  should 
be  considered  carefully  prior  to  reversing  the  entry.  The 
store  items  that  usually  appear  as  accrued  are  salaries, 
commissions,  buyers'  premiums,  interest,  other  expenses 
that  may  be  governed  by  contracts  and  unpaid  rent. 
Taxes  should  appear  as  an  accrued  liability.  Reserve  for 
taxes  is  discussed  in  the  next  caption.  Accrued  items  set 
up  for  balance  sheet  purposes  should  appear  as  charges  for 
operating  burden  on  the  profit  and  loss  statement. 

Reserve  for  Taxes  (as  a  current  liability). —  All  reserves 
are  set  up  on  the  balance  sheet  after  all  the  current  liabili- 
ties have  been  determined.  But  there  is  a  class  of  reserves, 


174  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

better  known  as  working  reserves,  not  payable  in  the  same 
category  as  current  assets  but  generally  in  yearly 
periods,  which  assume  an  accrued  liability  daily.  As  it  is 
customary  to  write  up  all  accruals  monthly,  these  reserves 
take  on  greater  proportions  as  each  month  of  the  fiscal  year 
progresses.  The  exact  amount  of  taxes  is  not  known,  but 
from  cash  payments  and  current  conditions  an  approximate 
amount  can  be  determined. 

The  accrued  taxes,  properly  termed  reserve  for  taxes, 
though  arguments  contrary  to  this  terminology  have  been 
offered,  are  logically  a  current  liability  not  payable  until 
bill  is  rendered.  It  may  be  argued  that  all  reserves  for 
taxes,  whether  municipal,  state  or  federal,  should  be  placed 
properly  on  the  balance  sheet  under  the  caption  of  Re- 
serves. When  bill  is  rendered,  relocate  the  reserve  to  cur- 
rent liabilities. 

To  offset  this,  it  is  reasonable  to  believe  that  the  monthly 
portion  of  the  tax  should  be  a  direct  charge  to  current 
month's  burden.  If  at  the  end  of  the  fiscal  year  the  tax 
should  be  greater  than  the  provision  allowed  for  taxes,  then 
a  reallocation  would  be  in  order.  This  would  be  difficult 
to  perform,  since  all  previous  statements  have  been  set  up. 
If  the  tax  bill  rendered  is  greater  than  the  reserve  set  up 
and  the  fiscal  period  has  been  closed,  the  excess  tax  over 
the  provision  made  is  a  direct  charge  to  surplus  prior. 
That  is,  to  the  surplus  determined  for  the  fiscal  year. 

Some  accrued  liabilities  may  be  analogous  to  reserves. 
But  it  must  be  understood  that  where  a  definite  accrual  can 
be  determined,  it  must  not  be  termed  and  treated  as  a 
reserve. 

Acceptances. —  Concerns  who  carry  on  trade  in  a  class 
of  merchandise  usually  sold  by  department  stores,  whether 
they  be  manufacturers  or  wholesalers,  or  even  importers,  do 
so  on  a  credit  basis.  The  capital  employed  by  these  con- 
cerns of  their  own  investments  is  only  sufficient  to  pay  for 


BALANCE  SHEET  LIABILITIES  175 

their  plant  and  fixtures,  with  a  small  margin  remaining  of 
the  investments  or  fixed  assets,  to  pay  for  merchandise  to 
begin  business  and  pay  a  few  weeks'  salaries.  The  makers 
or  wholesalers  of  a  production  must  extend  a  credit  line  to 
the  retailer,  and  the  retailers  will  sell  their  purchases  to 
the  consumer,  who  will  purchase  for  cash,  by  charge,  or  on 
the  installment. 

Thus,  a  complete  cycle  of  credit  is  put  in  motion  with  the 
greater  percentage  of  circulating  capital  as  merchandise  in 
trade.  It  becomes  necessary  for  the  manufacturer,  jobber 
or  wholesaler  to  extend  to  the  retail  trade  a  liberal  exten- 
sion of  time,  known  as  dating.  In  order  that  payment 
should  be  met  at  maturity  or  that  a  shorter  dating  should 
be  extended,  a  liberal  discount  is  inaugurated  as  an  induce- 
ment to  the  trade  to  meet  obligations  at  maturity  or  to 
anticipate  the  payment  by  allowing  the  legal  rate  of 
interest. 

Such  legal  rates  were  regulated  by  the  various  states  of 
the  union  as  time  progressed,  until  an  international  rate 
was  recognized.  The  result  of  the  liberal  discounts  is  such 
that  the  merchant,  in  order  to  take  advantage  of  liberal  dis- 
counts, borrows  funds  from  banks  to  meet  his  obligations. 
He  will  even  anticipate  obligations,  thereby  making  an  addi- 
tional percentage  of  discount  in  order  to  cover  the  interest 
charged  by  the  bank  for  the  loan. 

In  foreign  countries,  especially  European,  the  system  of 
credit  has  been  further  extended  in  order  that  the  borrow- 
ing of  funds  from  banks  may  be  made  easy  and  at  the  same 
time  permit  the  manufacturers  and  exporters  to  convert 
most  of  their  circulating  capital  into  cash.  This  system  is 
known  as  ACCEPTANCES,  which  is  another  form  of  draft, 
replacing  the  promissory  note.  When  the  foreign  mer- 
chant sells  in  his  own  country,  a  draft  accompanies  the 
shipment  and  the  vendee,  after  examining  the  purchase, 
will  stamp  on  the  face  of  the  draft  his  acceptance  with  his 


176  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

signature.  The  vendor  may  or  may  not,  according  to  his 
financial  strength,  present  such  acceptance  to  his  bank, 
which  will  discount  the  draft  upon  the  vendor's  indorse- 
ment. Where  the  foreign  merchants  export  merchandise 
to  another  merchant,  the  usual  modus  operandi  is  to 
attach  the  acceptance  draft  to  the  original  bill  of  lading, 
together  with  consular  invoice  and  other  shipping  docu- 
ments. Upon  the  acceptance  of  the  draft,  which  is  signi- 
fied by  writing  or  stamping  acceptances  across  the  face  of 
the  draft,  accompanied  by  signature,  the  shipping  docu- 
ments are  relinquished  to  the  importer  or  vendee. 

The  Federal  Reserve  Board  has  been  urging  American 
merchants  to  adopt  this  system  of  finance  and  the  retailers 
have  been  encouraged  to  cooperate  in  its  extensive  use. 
"Where  acceptances  have  been  given,  it  must  appear  under 
current  liabilities  under  the  caption  of  acceptances,  segre- 
gated to  show  the  amounts  and  its  period,  such  as  30,  60, 
90  days  or  4,  5  or  6  months. 

Though  department  stores  will  hardly  receive  accept- 
ances, such  acceptances  should  appear  under  current  assets 
and  accounts  receivable  (credited).  Where  acceptances 
have  been  discounted  at  a  bank,  an  account  should  be  set 
up  to  show  acceptances  discounted  (debited)  and  the 
bank  from  which  the  money  has  been  received  should  be 
credited  for  discounted  acceptances.  When  the  acceptance 
has  been  paid  by  the  vendee,  the  journal  voucher  set  up 
will  be  a  credit  to  acceptances  discounted,  and  a  debit  to 
the  bank  for  discounted  acceptances.  The  acceptance  of 
a  draft  will  show  on  its  face  the  day  payment  will  be  made, 
the  place  and  signature. 

Bonded  Debt. —  In  chapter  five,  bonds  have  been  dis- 
cussed briefly,  sufficiently  for  comprehension  of  them  in  so 
far  as  a  department  store  may  be  affected.  The  issue  of 
bonds  as  it  should  appear  on  the  books  of  the  corporation 
is  a  liability  showing  the  exact  amount  of  indebtedness. 


BALANCE  SHEET  LIABILITIES  177 

The  ledger  head  line  should  give  a  brief  description  of  why 
the  bonds  were  issued  and,  if  secured,  their  rate  of  interest, 
when  and  how  it  is  payable.  It  may  be  argued  that  this 
information  is  not  essential,  but  good  accounting  from 
every  angle  deems  it  advisable.  The  balance  sheet  should 
briefly  state  the  wherefores  of  the  bond  and  such  other 
data  as  are  necessary  to  support  an  intelligent  statement.  A 
company  that  has  issued  bonds  need  only  record  that 
amount  that  has  been  taken  up.  That  is,  if  a  board  of 
directors  authorizes  a  $300,000  bond  issue  and  only  $200,000 
has  been  issued  and  paid  for,  the  remaining  $100,000, 
known  as  Treasury  bonds  or  unissued  bonds,  will  have  no 
bearing  whatever  on  the  statement,  nor  will  they  effect  the 
balance  sheet  until  such  time  as  they  are  issued  and  paid  for. 
The  balance  sheet  may  have  a  foot  note  giving  some  detail 
as  to  the  authorized  issue,  but  the  items  under  liabilities 
are  the  only  items  of  any  direct  value. 

Dr.     Cash 

Cr.     Bonded  debt  (1st  mortgage) 

The  issue  of  bonds  is  generally  accompanied  by  a  pre- 
mium or  a  discount,  and  commission  or  brokerage  for  float- 
ing the  bond.  To  follow  up  the  above  mentioned  issue,  the 
par  value  being  100  was  sold  at  100%,  amount  sold  being 
$200,000. 

Dr.     Cash  $201,000 

Cr.     Bonded  debt  $200,000 

(description) 
Cr.     Premium  payable  $1,000 

The  premium  of  $1,000  may  be  considered  as  advanced 
interest,  not  as  a  profit.  During  the  life  of  the  bond,  the 
$1,000  should  be  amortized,  charged  off  and  applied  to 
accrued  interest  for  bonded  debt  set  up  to  meet  the  Inter- 
est payment  period.  The  accrued  interest  should  be  dis- 
tributed equitably  to  operating  burden. 


178  KETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

Assuming  that  the  $100,000  is  the  balance  of  the  author- 
ized issue  sold  at  a  discount,  say  of  991/2,  the  entry  would 
then  be: 

Dr.     Cash  $99,500 

Cr.     Discount  for  bonded  debt     $500 
Cr.    Bonded  debt  $100,000 

The  discount  plus  brokerage,  if  any,  must  logically  fol- 
low as  being  an  additional  cost  for  the  loan,  and  is  con- 
sidered as  interest  paid  up  for  bonded  indebtedness.  It 
should  receive  the  reverse  consideration  to  that  given  to 
premium,  by  amortizing  the  discount  over  the  life  of  the 
bond  as  a  charge  to  operating  burden.  Long  term  bonded 
debt  is  a  fixed  liability.  It  should,  however,  be  placed  in 
current  liabilities  at  least  twelve  months  prior  to  its 
maturity. 

Dividends  Payable. —  Profits  that  are  determined  after 
burden  of  every  description  has  been  deducted,  may  be 
termed  net  income  or  net  earnings.  It  may  be  distributed 
as  the  Board  of  Directors  may  decide,  according  to  its  cor- 
porate rights.  This  may  be  in  dividends,  additions  to  sur- 
plus or  working  capital,  store  enlargements  or  branch 
stores;  but  generally  the  distribution  and  application  of 
net  profits  depend  upon  the  progressiveness  of  the  mer- 
chants conducting  the  establishment. 

Preferred  stock  generally  bears  cumulative  dividends  or 
non-cumulative  dividends.  Cumulative  dividends  are  the 
dividends  declared  when  profits  are  not  sufficient  to  meet  the 
terms  of  the  stock  and  are  carried  over  to  the  following  year 
or  succeeding  years.  They  hold  a  priority  in  claim  over 
other  stocks  in  the  payment  of  dividends.  Non-cumulative 
dividends  receive  a  priority  each  year,  succeeding  cumula- 
tive dividends.  However,  where  dividends  are  not  declared 
or  are  not  sufficient  to  meet  the  terms  of  the  stock,  there  is 
no  obligation  on  the  part  of  the  corporation  to  support  the 
deficiency  in  dividends  for  the  non-cumulative  stock. 


BALANCE  SHEET  LIABILITIES  179 

In  declaring  dividends  to  be  paid,  the  department  store 
should  carefully  examine  its  balance  sheet  so  that  the  work- 
ing capital  will  not  be  impaired.  It  is  not  an  unusual 
occurrence  for  a  retail  business  to  have  earned  during  a 
current  year  considerable  profits,  but  most  often  these 
profits  will  be  represented  largely  in  stock  or  fixed  assets 
and  there  will  be  insufficient  cash  to  pay  the  dividend.  Or 
if  the  dividend  is  paid,  the  cash  in  banks  and  on  hand  will 
be  reduced  to  the  extent  of  making  a  bank  overdraft  and 
will  force  borrowing  of  funds  for  operations.  The  cash  on 
hand  which  may  appear  on  the  balance  sheet  is  worthy 
of  more  than  passing  consideration  before  a  Board  of  Direc- 
tors finally  votes  a  dividend  to  be  paid.  If  sufficient  cash 
be  available  out  of  the  company's  funds  to  pay  dividends,- 
the  necessary  funds  should  be  set  aside. 

The  book  entry  follows: 

Dr.     Current  surplus  

Cr.     Dividends  payable 

Reserves. —  Keserves  may  be  either  a  legal  require- 
ment, depending  upon  the  nature  of  the  business  organiza- 
tion, or  good  accounting  in  setting  up  the  balance  sheet 
to  offset  asset  values  for  replacement,  contingencies,  or  pro- 
vision for  losses  that  may  occur  in  the  future,  which  are 
chargeable  to  current  profits.  It  may  not  be  amiss  to  men- 
tion that  a  reserve  account  does  not  necessarily  convey  an 
impression  that  a  specific  sum  of  the  organization  earnings 
has  been  set  aside  to  meet  the  specific  object  that  the 
reserve  account  signifies.  As  previously  mentioned,  it  is  a 
charge  against  the  current  profits  to  provide  for  the  future. 
Most  prominent  of  all  reserves  are  those-  for  DEPRECIATION. 

Reserve  for  Depreciation. —  In  manufacturing  organi- 
zations, depreciation  takes  on  considerable  proportions  in 
its  relations  to  cost  of  production.  Machinery  in  factories 
or  foundries  and  their  entire  equipment  are  given  an  esti- 


180  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

mated  life,  depending  upon  the  commodity  in  production, 
which  affects  all  equipment.  A  percentage  of  the  entire 
cost  is  written  off  each  year  on  a  monthly  basis.  The 
amount  written  off,  if  for  machinery,  participates  in  set- 
ting up  the  machine  rate  cost  and  becomes  a  direct  charge. 
In  treating  of  building  depreciation,  all  its  elements  must 
be  taken  into  consideration  in  the  same  manner  as  occu- 
pancy is  treated  of  in  the  profit  and  loss  chapters,  in  order 
to  set  up  a  further  cost  to  the  machine  rate  for  production. 
Thus,  depreciation  in  its  entirety  is  chargeable  to  produc- 
tion. 

This  does  not  occur  in  retailing.  Depreciation  is 
charged  to  store  burden  and  cannot  be  charged  to  addi- 
tional cost  of  a  commodity  on  sale.  The  market  conditions 
and  competition  have  a  greater  tendency  in  maintaining 
the  mark  ups  than  does  the  addition  of  burden  to  cost  in 
order  to  obtain  profit.  To  further  the  argument  about 
why  depreciation  in  the  retail  store  cannot  and  must  not  be 
charged  to  cost  of  the  commodity,  a  subject  in  merchandis- 
ing must  be  given  careful  attention. 

Adam  Smith,  one  of  the  early  writers  of  political  econ- 
omy, says: 

"  When  the  stocks  of  many  rich  merchants  are  turned 
into  the  same  trade,  their  mutual  competition  naturally 
tends  to  lower  its  profits ;  and  when  there  is  a  like  increase 
of  stocks  in  all  the  different  trades  carried  on  in  the  same 
society,  the  same  competition  must  produce  the  same  effect 
in  them  all." 

It  must  obviously  follow  that  a  reserve  set  up  for  depre- 
ciation of  fixtures,  building  or  equipment,  when  charged 
to  stocks,  would  eliminate  a  merchant  in  the  present  era 
from  becoming  a  factor  in  competition.  This  is  the  case 
not  alone  with  the  merchant  conducting  a  department  store 
but  also  with  the  specialty  shop,  hotel,  lace  counter  or  even 
the  street  push-cart  vendor. 


BALANCE  SHEET  LIABILITIES  181 

The  capital  of  a  retail  store  must  be  likened  to  that  of  a. 
manufacturing  concern,  especially  in  the  inception  of  its 
business  career.  Where  investments  of  store  fixtures  dis- 
play matter,  furniture  and  building  improvements  relate 
to  factory  plant  and  machinery,  the  capital  is  reduced  by 
these  fixed  assets.  A  loss  is  immediately  taken  by  the 
actual  fact  that,  during  the  time  that  fixtures  are  being 
erected  or  show  cases  being  installed,  to  resell  the  cases 
will  cause  a  loss,  even  though  the  fixtures  would  probably 
be  worth  their  value.  Yet  the  fact  that  the  fixtures  are  a 
necessity  for  the  care  of  merchandise  and  pleasing  to  the 
eye  and  comforts  of  the  customer,  which  comforts  are  para- 
mount for  retailing  success  necessitates  the  reduction  of 
capital  in  fixed  assets. 

Depreciation  results  from  decreased  value,  either  by 
usage,  obsolescence,  or  more  often  in  the  department  store, 
and  especially  in  the  specialty  shop,  through  constantly 
changing  locations  of  departments.  The  term  obsolescence 
referring  to  fixtures  in  the  department  store  means  the 
inadequacy  of  such  fixtures  as  have  become  useless  for  the 
purpose  for  which  they  were  intended.  This  is  a  very 
common  occurrence  which  usually  results  from  increased 
sales  and  changes  in  fixtures  to  meet  the  increased  sales, 
the  object  of  the  change  being  the  customer's  comfort. 

The  life  of  fixtures  for  which  large  expenditures  have 
been  made  when  there  are  reasonable  assurances  that  they 
will  remain  permanently  in  one  place  at  least  a  few  years, 
covers  a  period  of  from  seven  to  ten  years.  If  a  ten  year 
period  is  considered,  a  monthly  charge  to  operating  burden, 
will  be  made  of  1/120  of  the  original  cost  and  a  reserve 
set  up  for  replacement. 

The  "  RESERVE  FOB  DEPRECIATION  "  account  should 
receive  its  debit  entry  when  replacements  are  made  or  from 
realizations  on  scrapped  fixtures.  Repairs  are  chargeable 
to  maintenance  of  store  under  such  maintenance  account 


182  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

as  may  be  carried  by  the  store,  several  of  such  accounts 
being  generally  found  in  department  store  ledgers.  The 
proper  account,  however,  is  "  REPAIRS  TO  STORE  FIX- 
TURES." The  various  expenses  supporting  the  account 
should  be  kept  under  separate  ledger  captions  and  accounts 
to  support  income  tax  schedules  and  management  require- 
ments. The  same  procedure  applies  to  maintenance  of 
buildings. 

Notes  Receivable  Discounted. —  There  is  not  much  to 
say  of  notes  receivable  discounted.  This  item  appearing 
under  liabilities  is  to  signify  that  notes  received  either  in 
payment  of  accounts  receivable  or  for  any  transaction 
have  been  discounted  by  some  bank  or  other  person.  Pro- 
vision is  thus  set  up  for  a  contingent  liability  in  the  event 
that  the  note  is  not  met  at  maturity  by  its  makers. 

The  notes  receivable  account  will  be  credited  with  cash 
received  from  the  bank  and  the  interest  charged  to  prepaid 
interest,  if  such  interest  is  deducted  when  the  note  is  dis- 
counted. If  the  interest  is  payable  at  the  maturity  of  the 
note,  provision  must  be  made  for  accrued  interest. 

The  journal  entry  will  be : 

Dr.     The  maker  of  the  note. 

Cr.    Notes  receivable  discounted. 

The  maker  of  the  note  becomes  a  contingent  asset  for 
the  value  of  the  note  to  offset  the  contingent  liability  of  the 
discounted  note.  "When  the  note  has  been  met,  this  jour- 
nal voucher  is  to  be  reversed,  which  closes  the  entire  trans- 
action. 

Guarantees  and  indorsements  must  receive  the  same 
attention  as  notes  receivable  discounted  and  should  appear 
on  the  balance  sheet. 

Judgments  (as  a  liability). —  The  management  of  any 
organization  will  endeavor  to  obviate  legal  procedure  when- 
ever and  wherever  possible.  But  it  sometimes  happens 


BALANCE  SHEET  LIABILITIES  183 

that  a  dispute  over  a  purchase  or  over  an  accident  is  taken 
into  court.  Judgment  may  be  given  against  the  organiza- 
tion. If  the  judgment  is  for  goods  sold  and  delivered,  the 
accounts  payable  should  be  debited  and  judgment  credited. 
^When  an  appeal  is  taken  the  judgment  should  appear  along 
•with  interest  accrued.  Or  a  reserve  should  be  set  up  to 
meet  additional  cost  until  the  case  is  finally  settled. 

Where  legal  procedure  has  resulted  from  a  contract,  the 
circumstances  of  the  contract  should  be  construed  carefully 
prior  to  setting  up  the  debit.  Most  every  concern  will 
carry  liability  insurance  and  accident  cases  will  then  be 
referred  to  the  insurance  company.  But  where  judgment 
exceeds  the  insurance  liability,  the  payment  of  such  judg- 
ment will  become  a  charge  to  operations.  In  any  event, 
the  judgment  until  reversed  or  paid,  must  appear  as  a  cur- 
rent liability. 

Reserve  for  Bad  Debts  and  Doubtful  Accounts. —  This 
caption  receives  its  source  from  the  credit  department. 
This  department  in  a  retail  establishment  must  exercise 
more  care  in  the  extension  of  credits  than  the  wholesaler, 
manufacturer,  jobber  or  importer.  This  statement  may 
not  meet  with  the  approval  of  wholesale  credit  men.  But 
it  must  be  conceded  when  comparison  is  made  between  the 
extension  of  credit  to  an  organization  whose  management 
is  supported  by  capital  and  business  qualifications,  and 
extending  credit  to  the  woman  whose  occupation  is  that  of 
house-wife,  who  has  no  business  ability,  or  to  women  whose 
business  qualifications  are  limited.  Their  resources  are  the 
support  they  receive  from  their  earnings,  parents  or  hus- 
band, who  may  or  may  not  be  financially  well  situated  or 
rated  in  any  of  the  commercial  agencies. 

The  retail  credit  risk  does  not,  however,  take  on  the  pro- 
portions of  the  risks  of  other  organizations,  since  monthly 
settlements  are  required.  Any  lapse  of  time  over  the  monthly 
settlement  may  impair  the  customer's  credit  standing  and 


184  EETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

will  not  be  checked  until  the  delinquent  account  has  been 
paid  up.  With  all  the  precautions  surrounding  the  retail 
credit,  accounts  will  run  30,  60  or  90  days  past  maturity. 
When  the  90  day  period  has  been  reached,  the  danger 
period  of  collections  has  approached,  unless  the  account  is 
one  whose  financial  and  social  standing  in  the  community 
warrants  the  account  to  remain  open  90  days  or  longer. 
The  author's  personal  experience  with  the  most  exclusive 
Fifth  Avenue,  New  York,  specialty  shops,  tailors,  dress- 
makers and  milliners  has  been  that  accounts  have  been 
known  to  run  from  six  months  to  two  years  before  receiv- 
ing settlement.  In  many  instances,  a  lost  patron  was  the 
result  of  requesting  settlement.  The  mark  up  on  the  mer- 
chandise in  such  organizations  is  of  such  proportions  that 
comparisons  are  entirely  out  of  the  question,  and  unusual 
credit  risks  are  taken  on  charge  accounts. 

For  example,  during  the  year  1913  the  author  was 
ready-to-wear  buyer  for  an  Omaha  store.  On  an  eastern 
buying  trip  he  met  a  former  associate  in  a  dress  manufac- 
turing house.  It  so  happened  that  the  former  associate,  now 
buying  for  a  Fifth  Avenue  house  of  prominence,  purchased 
the  same  style  gown  as  the  author.  Whereas  the  Fifth  Avenue 
house  marked  the  $32.50  gown  to  retail  at  $85,  the  author's 
retail  price  was  $52.50.  Consideration  must  be  given  to 
the  distance  from  New  York  to  Omaha  as  well  as  the  $20 
mark  up.  The  Omaha  store  sold  for  cash  and  the  other  to 
the  exclusive  trade  on  long  credit.  The  danger  of  uncol- 
lectable  accounts  under  these  conditions,  which  exist  in 
every  community,  not  necessarily  with  exclusive  trade,  only 
warrants  a  provision  for  bad  debts  and  uncollectable 
accounts.  This  provision  is  a  direct  charge  to  current 
operations.  Though  it  appears  on  the  balance  sheet  as  a 
liability,  under  reserve  for  bad  debts  and  doubtful 
accounts,  some  accountants  prefer  to  deduct  the  reserve 
from  accounts  receivable  under  current  assets.  Any  uncol- 


185 


lectable  account  on  which  a  part  or  the  whole  account  has 
been  collected  and  previously  written  off,  must  receive  its 
debit  entry  in  the  reserve  account  for  bad  debts  and  doubt- 
ful accounts. 

In  the  last  decade,  numerous  money  lenders  have  made 
it  a  business  to  loan  money  to  organizations  which  assign 
their  accounts  receivable.  On  these  accounts  an  advance 
of  70  to  80  per  cent  is  made,  for  the  consideration  of  such 
assignment  and  other  sound  collateral,  6  per  cent  per 
annum  is  charged  as  interest  and,  to  circumvent  the  law, 
a  bonus  or  commission  is  paid  that  varies  from  ^  to  2  per 
cent  per  month.  Stores  whose  charge  accounts  carry  lib- 
eral time  for  payments,  absorb  considerably  more  than  the 
capital  will  permit,  and  the  hypothecation  of  accounts  gen- 
erally follows  to  keep  the  concern  going. 

The  Federal  Income  Tax  law  allows  for  deductions 
"  Debts  due  to  the  taxpayer  actually  ascertained  to  be 
worthless  and  charged  off  within  the  year."  The  object 
of  setting  up  the  reserve  for  bad  debts  and  uncollectable 
accounts  is  to  reflect  the  true  condition  of  the  organization 's 
affairs.  Most  every  organization  can,  from  previous 
records,  set  up  an  estimate  of  probable  losses  on  accounts 
receivable  for  their  fiscal  year.  But  only  those  actual 
worthless  accounts  for  the  fiscal  year  are  permitted  in  the 
deduction  from  income. 

Contingent  Reserves. —  Liabilities  may  either  be  cur- 
rent contingent,  fixed  or  capital  liabilities.  In  the  discus- 
sion of  contingent  liabilities  for  ready  comprehension,  it 
may  be  said  that  though  they  are  not  an  actual  liability, 
they  are  a  possible  liability.  As  long  as  an  organization 
places  itself  in  a  position  where  it  may  possibly  become 
a  debtor,  provision  must  be  set  up  on  the  books  of  the  com- 
pany to  cover  any  contingency  that  may  arise  until  this 
possibility  has  been  removed  or  retired.  The  value  of  a 
balance  sheet  with  all  contingents  having  been  provided 


186  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

for  will  not  only  present  the  true  condition  of  an  organiza- 
tion, assuming  that  all  other  accounting  principles  have 
received  every  consideration,  but  also  its  basis  for  credit, 
whether  for  banking  purposes  or  for  obtaining  commercial 
credit,  and  is  worthy  of  greater  appreciation. 

Most  usual  amongst  the  contingent  liabilities  are  notes 
receivable  discounted,  indorsements,  guarantees,  lawsuits, 
whether  pending  or  on  appeal,  subleases  and  covenants  in 
contracts.  These  may  warrant  the  establishment  of  a  con- 
tingent reserve.  Contingent  reserves  are  also  established 
where  insurance  does  not  cover  probable  losses. 

Redemption  of  Collateral. —  In  ordinary  organizations 
this  account  may  not  appear.  The  department  store  will 
find  it  necessary  to  require  collateral  from  some  charge  cus- 
tomer to  support  the  extension  of  credit  limits.  The  col- 
lateral which  is  held  in  trust  until  such  time  as  all  or  part 
of  it  may  be  forfeited  for  uncollectable  accounts,  or  until 
the  account  is  withdrawn,  will  appear  under  collaterals  on 
the  balance  sheet.  Its  offsetting  liability  will  appear  under 
redemption  of  collateral. 

Reserve  for  Discounts. —  in  most  retail  and  department 
stores  where  charge  accounts  are  carried,  the  terms  of  pay- 
ment are  net,  no  discount,  payable  when  bill  is  rendered  on 
the  10th  or  15th  of  the  month.  Discounts  are  given  to  pur- 
chasing agents.  This  makes  it  necessary  to  establish  a 
reserve  and,  though  it  is  treated  as  a  liability,  .and  may 
appear  under  reserve,  some  accountants  will  deduct  the 
discount  from  the  total  accounts  receivable  under  current 
assets.  The  discount  may  be  better  termed  commissions. 
"When  paid  at  the  time  of  settlement,  it  becomes  an  addi- 
tional charge  to  selling  burden.  In  setting  up  the  reserve, 
its  offsetting  debit  entry  should  be  to  selling  commissions. 

Reserve  for  Leakage. —  Deterioration,  as  practically 
interpreted  in  accounting,  relates  to  depreciation.  An 
entirely  different  aspect  is  taken  as  applicable  to  department 


BALANCE  SHEET  LIABILITIES  187 

stores.  It  does  not,  as  is  commonly  understood,  relate  to 
shop-worn  merchandise.  There  can  be  no  deterioration  on 
merchandise  if  sales  promotion  receives  its  full  share  of 
attention.  Stocks  must  turn  a  given  number  of  times  a 
year.  The  turnover  depends  upon  the  class  of  merchan- 
dise. If  stocks  don't  move,  take  a  mark  down  and  get  it 
out.  Make  it  move.  Take  your  medicine  with  a  smile. 

No  buyer  of  merchandise  is  infallible.  They  are  but 
human.  Since  it  is  but  "  human  to  err,"  the  merchan- 
dise manager  or  owner  should  not  condemn  the  buyer,  but 
should  be  thankful  for  an  opportunity  to  advertise  mer- 
chandise where  the  public  may  get  something  for  nothing, 
metaphorically  speaking.  The  author  would  further 
recommend  that  if  such  merchandise  has  been  marked  down 
so  that  it  is  hardly  possible  to  mark  the  stock  any  lower, 
it  should  be  given  away  to  a  charitable  institution  or  to  the 
poor,  and  thas  add  to  the  good  will  of  the  organization. 

It  is  a  deplorable  condition  that  exists  in  retail  estab- 
lishments, especially  in  the  larger  department  stores,  that 
find  it  necessary  to  employ  detectives  for  tbe  detection  of 
purloining  individuals.  It  may  be  surprising  to  those 
unacquainted  with  department  store  conditions  to  know 
that  from  half  of  1  per  cent  and  as  high  as  2  per  cent  of 
the  store's  sales  are  unaccounted  for.  The  condition  of 
inventories  may  vary  to  this  extent  after  all  provision  has 
been  made  for  the  proper  control  of  merchandise. 

Deterioration  certainly  does  not  signify  theft.  It  is  sup- 
planted by  the  word  leakage,  yet  reserve  for  leakage  repre- 
sents "  unaccounted  for  stocks."  Perhaps  the  application 
of  a  Latin  term  for  the  account  may  be  more  appropriate, 
such  as  alls  volat  propriis,  meaning  "  flies  with  its  own 
wings."  A  store  must  determine  its  own  leakage  percent- 
age and  monthly  apply  the  percentage  against  sales  as  the 
reserve  chargeable  against  inventory.  Differences  in 
inventory  verifications,  unless  other  calculations  are  ac- 


188  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

counted  for,  must  adjust  stocks  carried  in  the  various 
departments. 

Capital. —  Oh  the  balance  sheet  the  caption  of 
"  capital  "  will  represent  the  capital  actually  paid  into  the 
organization  for  its  stock.  If  the  capital  is  represented  by 
preferred  and  common  stock,  the  amount  paid  in  for  each 
should  'appear.  Some  balance  sheets  will  show  the  total 
capital  of  stock  of  the  corporation,  less  the  stocks  unissued, 
with  the  remainder  representing  the  actual  paid  up  stock, 
which  will  be  considered  as  the  organization's  paid  up  cap- 
ital. In  department  stores,  and  in  fact  in  all  retail  estab- 
lishments, the  capital  is  furnished  by  those  taking  an  active 
interest  in  the  conduct  of  the  corporation's  affairs. 

"Where  the  corporation  has  reached  such  extensive  pro- 
portions as  to  require  outside  capital,  reorganization  is 
sometimes  resorted  to,  or  bonds  or  debentures  may  be 
issued.  Most  often  increased  capital  through  change  of 
incorporation  takes  place.  The  par  value  of  the  shares 
will  be  such  as  to  be  within  the  means  of  that  class  of  the 
public  the  store  desires  to  interest.  Conversions  into  vari- 
ous securities  may  be  offered  by  the  store  to  retire  such 
stock.  Those  who  are  well  acquainted  with  this  form  of 
high  financing  will  let  such  securities  alone.  The  capital 
must  appear  to  agree  with  the  certificate  of  incorporation. 

Surplus. —  The  surplus  account  here  referred  to  must 
not  be  confused  with  its  other  interpretations.  In  the 
retail  establishment,  its  interpretation  is  that  of  accumu- 
lated profits  from  operations.  Defining  profits,  it  refers  to 
the  earnings  from  operations  in  excess  over  cost,  after  all 
expenditures  for  operating  burden,  accruals,  and  contin- 
gencies have  been  deducted  from  such  excess.  Dividends 
can  only  be  paid  out  of  the  net  earnings  of  the  company, 
and  such  dividends  are  a  direct  charge  to  surplus  account. 

The  surplus  of  a  company  is  sometimes  diminished  by 
writing  off  fixed  assets.  In  the  distribution  of  the  store's 


BALANCE  SHEET  LIABILITIES  189 

burden  it  sometimes  creates  a  greater  burden  than  the  store 
actually  absorbs.  This  is  the  means  of  creating  a  hidden 
store  surplus,  and  at  best  should  be  discouraged. 

Surplus  Prior. —  The  term  surplus  prior  refers  to  that 
surplus  accrued  during  any  period,  prior  to  the  current 
fiscal  year's  operations. 

Current  Surplus. —  The  balance  sheet  should  show  the 
detail  of  all  capital,  liability,  segregating  capital,  paid-up 
surplus  account  and  current  surplus.  The  last  mentioned 
refers  to  the  surplus  accrued  during  the  current  year's 
operations,  and  agrees  with  the  current  profit  and  loss 
account. 


190  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 


FIRM'S 
COMPARATIVE  BALANCE  SHEET  FOE  OCTOBER,  1919,  AND 


RESOURCES 

1919, 
October 

1918, 
October 

1919, 

September 

Increase 
Decrease 

CURRENT  ASSETS: 

Cashiers'  balances  

Paymaster  balances  

Office  cash  

Service  fund  

Drivers'  working  fund      

Total  cash  

Inventory  (mdse.)  

Accounts  receivable        

C.  O.  D.'s  outstanding  

Personal  (accounts  not  represented 
in  subsidiary  ledgers)  

TOTAL  CURRENT  ASSETS  

\ 

INVESTMENTS: 
Bonds  

Liberty  bonds  

Real  estate  

Interest  in  other  companies  

TOTAL  INVESTMENTS  

FIXED  ASSETS: 
Buildings  

Furniture  and  fixtures  

TOTAL  FIXED  ASSETS  

DEFERRED  ASSETS: 
Inventory  of  supplies  

Stocks  and  bonds  held  as  collateral 
Prepaid  rent  .  .  .  •  

Prepaid  interest  

Postage  

JUDGMENTS  (On  )  

GOOD  WILL  

TOTAL  RESOURCES  

BALANCE  SHEET  LIABILITIES 


191 


NAME 

NINE  MONTHS  OF  THE  FISCAL  YEAB  ENDING  JANUABT  31,  1920 


LIABILITIES 

1919, 
October 

1918, 
October 

1919, 
September 

Increase 
Decrease 

CURRENT  LIABILITIES: 

Notes  payable  

Reserve  for  purchasing  agents'  dis- 
counts   

Reserve  for  Federal  Tax  (not  de- 
ductible from  Income  Tax). 

Reserve  for  State  Tax  

Reserve  for  Municipal  Tax  

Reserve  for  interest  

Outstanding  cash  credits  

TOTAL  CURRENT  LIABILITIES      .... 

RESERVES: 
*Reserve  for  leakage  (chargeable  to 
cost  of  mdse.)  

Reserve  for  bad  debts  

Coworkers  reserves  

TOTAL  RESERVES  

COLLATERAL  REDEMPTION  LIABILITY 
DEFERRED  CREDITS  

f 

JUDGMENTS  (CR.)    

CAPITAL  LIABILITIES: 

Current  surplus  

TOTAL  LIABILITIES 

*  It  is  recommended  that  this  reserve  should  not  appear  on  the  balance  sheet. 
Its  disposition  should  be  monthly,  by  reducing  the  department's  inventory  to  which  it 
may  relate. 


192   RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 


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BALANCE  SHEET  LIABILITIES 


193 


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194  EETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 


BALANCE  SHEET  LIABILITIES 


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Contingent  salary  
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P  M's  salary  
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Porter's  and  maid's  salary  
Porter's  and  maid's  uniforms.  .  . 
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196   EETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 


BALANCE  SHEET  LIABILITIES 


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TOTAL  OPERATING  BURDEN 

CHAPTER  VIII 

TURNOVER 

The  importance  of  a  Profit  and  Loss  Statement  in  the 
department  store  takes  on  greater  proportions  than  in  any 
other  business.  Not  that  it  is  less  important  for  any  other 
organization  to  know  its  trading  conditions,  but  that  the 
department  store  is  made  up  of  many  different  stores,  each 
one  conducted  as  if  it  were  a  single  unit,  with  a  final  result 
of  their  all  being  merged  into  one.  To  neglect  any  one 
unit  may  possibly  absorb  profits  accumulated  in  other 
departments.  The  merchandising  problems  are  such  that 
the  most  minute  detail  must  receive  constant  consideration 
and  planning. 

Prior  to  going  into  the  subject  of  Profit  and  Loss  from 
an  accounting  problem,  the  source  as  to  what  constitutes  a 
profit  in  a  department  store  becomes  an  economic  subject. 

Capital. —  The  capital  invested  in  an  enterprise  is 
merely  a  part  of  the  capital  in  use.  The  important  fact 
must  not  be  overlooked  that  the  moment  capital  is  invested 
in  an  enterprise,  such  capital  is  almost  immediately 
reduced  by  fixed  assets  being  taken  out  of  the  capital.  The 
remaining  capital  must  be  prepared  to  meet  contingent  lia- 
bilities, such  as  salaries  and  rentals,  for  which  credit  limits 
are  not  given.  The  balance  of  the  capital  is  to  be  used  in 
trade.  The  credit  privileges  given  to  the  store  by  manu- 
facturers, wholesalers,  importers  or  jobbers  become  the  cir- 
culating capital  of  the  business  in  the  form  of  merchandise 
in  addition  to  unfixed  capital.  Economics  teaches  us  of 
capital.  The  whole  capital  of  the  undertaker  of  every 
•work  is  necessarily  divided  between  his  fixed  and  his  circu- 
lating capital.  While  the  whole  capital  remains  the  same, 

198 


TURNOVER  199 


the  smaller  the  one  part  the  greater  must  necessarily  be  the 
other.  It  is  the  circulating  capital  which  furnishes  the 
materials  and  wages  for  labor  and  puts  industry  into 
motion. 

It  should  be  remembered  that  CIRCULATING  CAPITAL  PUTS 
INDUSTRY  INTO  MOTION.  The  circulating  capital  of  the 
department  store,  specialty  shop  or  retail  store,  must  neces- 
sarily be  its  stock  on  hand,  plus  labor.  The  greater  the 
circulation  of  the  various  stocks  the  better  the  production, 
distribution  and  full  complement  of  the  establishment.  The 
profits  of  capital  seen  through  the  theories  of  economics  in 
production  and  distribution  lie  in  stock  turning. 

This  does  not  necessarily  mean  that  in  the  case  of  an 
organization  beginning  with  a  capital  of  $100,000,  of  which 
amount  $40,000  becomes  a  fixed  asset,  the  $60,000  remain- 
ing is  the  circulating  capital.  It  might  be  interpreted  as 
such  from  a  dollars  and  cents  point  of  view,  but  economic 
features  are  such  that  the  $60,000  remaining  from  the 
investment  of  the  capital  plus  such  capital  granted  the 
organization  as  credit  in  the  form  of  merchandise,  takes  on 
an  aspect  of  additional  circulating  capital. 

Considerable  has  been  said  and  written  of  stock  turn- 
overs, whether  they  refer  to  ready-to-wear  goods  or  to 
house  furnishings,  jewelry,  or  any  other  class  of  merchan- 
dise carried  on  for  trade  in  a  department  store.  The  con- 
clusion invariably  is  that  its  stocks  should  turn  a  given 
number  of  times.  But  in  devising  a  means  to  do  it  with- 
out making  excuses  for  failure  to  accomplish  tKe  desired 
results,  merchants  and  buyers  are  apparently  prone  to 
discuss  the  difficulty  of  the  subject. 

"Were  the  author  to  terminate  this  discussion  in  its  begin- 
ning it  would  be  sufficient  to  state  merely  that  the  maxi- 
mum propagation  of  turnovers  can  be  obtained  by  the 
application  of  social  science  and  economics.  The  vastness 
of  these  studies  in  its  various  stages  analyzes  the  subject 
from  every  angle. 


200  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

Old  Merchandising  Methods. —  The  merchants  of  a  few 
generations  ago  were  wont  to  come  to  the  market  and  make 
their  purchases  for  six  months  or  a  year.  Their  mark  up 
was  not  intended  for  small  profits  and  volume,  but  rather 
for  a  substantial  profit  along  conservative  lines.  Then 
again  there  was  the  old-timer  whose  capital,  regardless  of 
its  amount,  affixed  thereto  6  per  cent  interest  at  the  end  of 
each  fiscal  year.  Using  the  vernacular,  he  jollied  himself 
into  believing  he  had  a  larger  capital  at  the  end  of  each 
year,  whether  his  business  earned  the  interest  or  not. 

Modern  accounting,  however,  has  enlightened  the  mer- 
chant so  that  it  is  now  known  to  all  that  profits  are  only 
accumulated  by  the  quick  turnover  of  stocks.  To  make 
greater  profits,  progressive  merchants  realize  that  this  can 
only  be  accomplished  by  "  buying  little  "  but  often.  Do 
not  be  misled  into  believing  that  every  time  the  buyer  goes 
to  the  market  to  buy  he  has  turned  over  his  stocks.  It 
appears  a  jest  even  to  make  mention  of  this  ridiculous  idea. 

How  Turnover  is  Ascertained. —  There  is  but  one 
method  of  ascertaining  this  information,  and  such  informa- 
tion must  be  known  daily  or  weekly  to  the  merchant  and 
buyer  to  secure  the  desired  result.  The  average  weekly 
stock  on  hand  at  a  given  number  of  times  into  the  year's  sales 
signifies  the  number  of  turnovers  for  the  year.  The  aver- 
age stock  on  hand  either  for  the  week  or  month  should  be 
used  as  a  divisor.  The  sales  for  the  period  to  be  figured 
are  to  be  the  dividend  and  the  quotient  will  be  the  turn- 
over. 

Assuming  that  the  amount  of  stock  on  hand  is  $50,000, 
it  is  to  be  determined  how  long  a  period  it  will  take  for 
such  stock  to  turn.  The  $50,000  will  be  divided  by  the 
sales  for  the  week  and  the  quotient  will  be  the  number  of 
weeks  it  will  take  for  such  stock  to  be  sold  out.  In  mer- 
chandising, the  method  of  figuring  is  to  determine  the 
number  of  times  merchandise  is  turning  per  annum,  or  the 


TURNOVER  201 

length  of  time  it  will  take  for  certain  stocks  to  turn  com- 
pletely. Merchandising  is  the  prime  factor,  one  that 
absorbs  constant  attention  with  an  extensive  merchandising 
organization  employed  to  control  the  situation. 

The  old-time  management  had  very  little  or  no  compe- 
tition. Stores  were  all  placarded  with  the  "  General  Mer- 
chandise "  sign.  "Within,  stocks  were  under  cover,  with 
very  little  display  and  only  a  few  price  signs  here  and 
there.  The  clerk  was  always  pleasant  and  knew  every  one 
in  town.  With  the  coming  of  the  present  day,  the  popula- 
tion increased  in  every  town  and  the  influx  of  immigration 
was  great,  forming  a  populace  that  is  the  American  in  the 
making.  "With  this  formation,  the  foreign  and  the  Ameri- 
can knowledge  of  merchandise  that  tb.3  customer  possesses, 
along  with  competition  and  new  department  stores  and 
specialty  shops  constantly  organizing,  merchandising  has 
developed  into  a  modern  science.  It  is,  therefore,  neces- 
sary to  make  scientific  methods  applicable  in  the  success- 
ful management  of  all  departments  to  attain  profits.  Profits 
again  revert  us  to  the  problems  of  turnover  of  stocks. 

In  analyzing  a  commercial  enterprise,  the  analyst  is  con- 
fronted with  many  vital  points  that  require  experts  and 
men  of  long  and  varied  experience  who  conduct  success- 
fully and  control  the  various  departments. 

There  is  the  statistician  who,  in  conjunction  with  the 
efficient  manager,  endeavors  to  hold  the  overhead  down  to 
normal.  Then  there  is  the  buying  organization,  which 
devotes  its  time  to  buying  and  promoting  the  sales;  again 
there  is  the  cost  of  production,  and  any  number  of  other 
elements.  In  fact,  every  department  has  a  function  to 
perform  with  an  objective  of  doing  it  better  every  day. 
But  of  all  the  vital  points  of  a  business,  be  it  mining  or 
manufacturing  or  the  department  store,  distribution  pre- 
cedes everything  else  in  perfect  management  and  profit 
making.  If  your  overhead  is  high,  a  greater  distribution 


202  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

will  reduce  it.  Distribution  is  sometimes  supplanted  for 
the  word  "  stock  turnovers."  To  accomplish  any  particu- 
lar objective  in  the  department  store,  from  a  managerial  or 
profit-making  point  of  view,  the  accomplishment  of  that 
objective  leads  to  distribution,  and  a  greater  distribution 
means  the  increase  of  sales. 

The  buyer  must  acknowledge  the  logical  argument  that 
the  distribution  of  his  various  stocks  holds  him  in  control, 
like  the  suspended  sword  of  Damocles.  His  stock  must 
turn  a  given  number  of  times  to  make  good,  or  some  one 
else  will  make  them  do  it.  And  it  should  be  not  merely  a 
quick  turn  of  stocks,  but  a  profitable  turn. 

In  acknowledging  the  importance  of  distribution,  the 
merchant  and  buyer  are  confronted  with  the  problem  of 
how  to  accomplish  the  desired  result.  It  therefore  be- 
hooves the  merchandise  manager  to  plan  sales  promotion 
campaigns  with  the  cooperation  of  department  heads  and 
strenuously  to  execute  well  defined  plans. 

Lest  it  be  overlooked,  it  may  be  opportune  to  mention 
that  newspaper  advertising  or  advertising  by  pamphlets  or 
otherwise  does  not  imply  sales  promotion,  and  that  this  is 
only  a  part  of  the  theme  for  operation. 

Advertising  is  departmentized  and  known  as  the  pub- 
licity department.  Its  objective  is  to  bring  the  people  into 
the  establishment.  Publicity  does  not  close  the  sale  across 
the  counter. 

Merchandise  Manager. —  Centralizing  the  merchandis- 
ing power,  both  purchases  and  sales,  its  beginning  and 
result  radiate  from  the  merchandising  office.  This  office 
does  not  merely  pass  upon  the  placing  of  orders,  and 
invoices,  or  offer  a  suggestion  to  the  buyer  that  a  specific 
class  of  merchandise  can  be  purchased  from  a  different  man- 
ufacturer or  wholesaler  with  a  better  discount.  The  abso- 
lute control  of  stocks  in  every  department  must  be  known 
here  every  day.  Knowledge  of  one's  business  is  its  great- 


TURNOVER  203 

est  factor.  The  larger  the  volume,  the  greater  its  import- 
ance. 

The  banker  can  only  pay  his  overhead  expenses  and 
declare  dividends  by  the  daily  turnover  of  cash  on  hand. 
The  same  problem  confronts  the  merchandise  manager.  To 
exemplify  further  turnover  and  profits  as  being  synony- 
mous, reference  is  made  to  the  fruit  or  vegetable  vendor. 
His  stock  must  turn  daily  or  it  becomes  unsalable.  His 
stock  must  sell,  and  sell  quickly,  for  therein  lay  his  profits. 
Adopt  the  fruit  vendor's  method,  make  it  applicable  to  the 
million  dollar  business,  prevent  the  very  often  unnecessary 
mark  down,  and  hold  on  to  the  gross  profits  as  long  as 
possible.  Mark  downs  cannot  be  eliminated,  but  they  can 
oftentimes  be  prevented. 

The  merchandise  manager  may  lend  every  assistance  to 
the  buyer  in  his  purchase  and  department  management, 
including  distribution,  but  it  falls  to  the  lot  of  the  buyer 
to  see  how  well  his  selling  force  can  close  their  sales.  This 
makes  it  necessary  for  buyers  to  be  on  the  floor  of  their 
departments  and  not  be  cooped  up  in  offices  or  permanently 
seated  at  desks. 

Thus  every  auxiliary  of  the  department  store  has  its  cen- 
tral station  at  the  merchandise  manager's  office,  who,  in 
turn,  must  have  his  work  so  systematized  as  to  control  the 
most  minute  detail. 

It  is  essential  that  the  sales  clerk's  selling  ability  should 
be  developed  and  tutored  to  the  extent  that  their  salesman- 
ship becomes  an  asset  to  the  establishment  in  the  accom- 
plishment of  the  required  turnover.  Stores  have  estab- 
lished schools,  employed  instructors,  and  put  in  use  almost 
every  modern  device  to  educate  their  selling  staff  in  perfect 
salesmanship. 

Salesmanship. —  What  constitutes  salesmanship?  The 
subject  is  indeed  quite  an  extensive  one,  yet  it  must  not  be 
overlooked  that  salesmanship  is  but  a  modifier  of  stock 


204  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

turnover.  The  sales  person  who  wishes  to  be  termed 
properly  a  salesman  must  have  the  necessary  qualities  for 
making  the  prospective  buyer  think  as  he  thinks,  be  of  the 
same  mind  as  he  is  and  as  enthusiastic.  The  selling 
requisites  are  divided  in  the  following  classes: 

Advertising. 

Health. 

Honesty. 

Initiative. 

Knowledge  of  merchandise  handled. 

Sincerity. 

Enthusiasm. 

Determination. 

Advertising. —  A  teacher  of  merchandise  and  a  creator 
of  desire  is  the  publicity  man.  The  advertising  man  in  a 
store  must  of  necessity  be  a  salesman  of  extraordinary 
qualifications.  He  not  only  teaches  and  sells  to  the  entire 
society  in  which  the  store  is  located,  but  also  he  must 
create  desire  in  the  public  so  that  it  is  as  enthusiastic  as 
himself,  in  order  to  bring  them  into  the  store.  He  must 
convey  convincingly  to  the  minds  of  the  public  the  whys 
and  wherefores,  with  an  easy  understanding  of  what  his 
store  represents  in  service,  in  merchandise,  and  in  policy. 
Advertising  is  the  initial  source  creator  of  good  will.  It 
sells  to  all  and  is  substantiated  by  the  individual  sales  per- 
son when  the  public  enters  the  store.  A  store  cannot  ad- 
vertise to-day,  say  what  their  policy  and  merchandise  con- 
sists of  and  then  stop  for  an  indefinite  period.  It  is  the 
persistency  of  publicity  which  keeps  before  the  public's 
mind  the  store  and  its  full  complement.  But  the  persist- 
ency of  subjects  must  not  be  overdone.  Not  alone  must 
a  store  educate  its  own  selling  help  —  because  they  don 't 
come  readymade  salesmen  —  but  also  the  public  must  be 
educated  and  persistently  educated  so  that  its  mind  will 


TURNOVER  205 

be  open  at  all  times  to  think  as  the  store  thinks.  The 
author  does  not  undertake  to  tell  the  publicity  man  his 
business,  but  merely  makes  mention  of  the  requisites  neces- 
sary in  assisting  to  accomplish  the  necessary  turnover  of 
stocks. 

Health. —  In  engaging  the  woman  or  man  as  a  sales- 
man, it  must  be  remembered  that  the  store  is  engaging  a 
person  who  is  going  to  represent  the  store,  the  owners,  and 
their  good  name.  Human  nature,  and  character,  are  pic- 
turized  in  the  physiognomy.  The  mouth,  the  eyes,  the  ears, 
the  forehead,  all  immediately  convey  the  character  of  the 
person  who  is  being  considered  as  a  coworker  and  represen- 
tative of  the  store.  Having  determined  upon  the  charac- 
teristics of  the  person  as  a  successful  applicant,  the  ques- 
tion of  good  health  is  a  necessity.  "Where  the  body  is 
healthy,  the  mind  will  be  supported  in  a  like  manner.  The 
medical  science  may  disagree  on  the  technique  of  this  state- 
ment, but  commercially  the  diagnosis  is  not.  far  from  cor- 
rect. The  healthy  mind,  free  from  bad  habits,  clean  in 
thought,  must  be  one  that,  if  not  already  alert  and  quick 
to  think,  is  more  easily  trained  than  the  one  otherwise.  A 
healthy  mind  and  body  become  a  requisite  for  good  sales- 
manship. 

Honesty. —  The  author  does  not  refer  to  the  weak- 
minded  individual  who  would  purloin  what  belongs  to 
another.  Kef erence  is  made  to  honesty  with  one 's  self, 
where  the  depths  of  the  heart  are  interested  in  one's 
actions,  truth  to  oneself  in  thought,  action,  speech  and 
knowledge.  To  succeed  not  only  as  a  salesman,  but  in 
business  in  its  entirety,  honesty  is  like  a  halo  crowning  the 
word  success.  To  sell  a  customer  a  piece  of  merchandise 
by  conveying  a  wrong  thought  in  order  to  effect  a  sale  is 
dishonest  and  is  not  making  a  permanent  customer. 
The  honest  thought  in  back  of  sales  must  be  such  that  not 
only  will  the  customer  be  pleased  with  the  purchase  but 


206  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

that  he  will  also  think  highly  of  the  honesty  of  every  state- 
ment, of  every  claim,  in  substance,  by  which  it  is  supported ; 
so  much  so  that  the  customer  will  become  a  permanent 
asset  to  the  store.  Again,  we  have  a  creator  of  good  will, 
and  a  means  of  accomplishing  the  necessary  turnover. 

Initiative. —  The  difference  between  all  mortals  lies  in 
their  brain  power.  Some  brains  are  more  developed  than 
others.  Yet  the  ability  to  develop  our  brain  power  lies 
within  our  own  desire,  our  own  ambition  of  what  we  care 
to  be  —  whether  we  shall  be  satisfied  with  what  brain 
power  we  possess,  or  whether  our  craving  for  knowledge  or 
ambition  leads  us  to  attainment  such  that  the  fruits  of  our 
brain  power  may  recompense  us  by  making  possible  for  us 
the  way  in  which  we  care  to  live.  That  person  who  has 
to  be  told  what  to  do,  how  to  do,  whether  it  be  once  or  a 
dozen  times,  possesses  no  initiative.  The  person  that  pos- 
sesses initiative  is  the  one  who  knows  what  to  do,  how  to  do 
it,  and  does  it. .  It  is  the  person  who  is  faced  with  a  prob- 
lem, it  may  be  critical  or  one  never  presented  before  in  his 
experience,  and  who  takes  the  initiative  to  do  or  die,  that 
makes  success.  To  overcome  obstacles  such  as  these  and 
come  out  a  winner  helps  in  the  making  of  good  salesman- 
ship. This  does  not,only  apply  to  salesmanship,  but  to  all 
business  men  who  are  confronted  with  problems.  It  is  the 
fellow  with  plenty  of  initiative  that  comes  up  smiling  all 
the  time.  Knock  him  down  as  much  as  you  like,  he  will 
always  come  up,  and  come  up  strong. 

Knowledge  of  Merchandise. —  The  merchandise  placed 
in  a  department  to  be  distributed  to  the  consumer  falls  to 
the  lot  of  the  buyer.  "Where  to  get  the  merchandise,  how 
to  get  it,  how  to  buy  it,  the  reasons  for  its  purchase,  are 
problems  that  come  within  the  scope  of  the  buyer.  The 
author  will  not  undertake  to  tell  the  buyer  the  details  of 
this  subject,  for  buying  is  a  subject  in  itself,  on  which 
every  buyer  has  his  own  opinion  and  does  things  to  the  best 


TURNOVER  207 

of  his  knowledge  and  ability.  It  is  assumed,  however, 
when  a  buyer  makes  a  purchase  and  merchandise  is  deliv- 
ered to  his  department,  that  he  has  made  the  best  purchase 
possible. 

It  should  be  incumbent  upon  the  buyer  to  educate  his 
sales  people  in  his  department  in  the  various  changes  of 
style,  material,  workmanship,  names  of  materials,  their 
composition  and  general  construction,  regardless  of  what 
the  merchandise  may  be  that  is  carried  in  a  particular 
department.  The  sales  person  should  study  intensively  the 
merchandise  carried  on  for  trade  in  the  department  in 
which  he  or  she  may  be  employed.  Knowledge  is  power. 
This  is  an  old  saying,  but  a  true  one.  "When  the  sales  per- 
son has  at  his  command  a  well  fortified  knowledge  of  the 
merchandise,  convincing  power  is  more  readily  transmitted 
to  the  open  mind  of  the  prospective  buyer.  Then  all  ques- 
tions put  to  the  sales  person  receive  not  only  a  ready 
answer,  but  a  convincing  one,  supported  only  by  honest 
statements.  It  is  one  of  the  prime  factors  that  go  with 
good  salesmenship.  The  greater  the  knowledge  of  mer- 
chandize the  sales  person  possesses  the  greater  must  be  the 
proportions  of  the  turnover. 

Sincerity. —  Sincerity  does  not  imply  flattery,  nor  can 
it  be  so  interpreted.  Many  standard  authors  of  fiction 
have  written  that  no  one  is  so  little  vain  that  he  does 
not  like  flattery  now  and  then.  But  flattery  in  a  depart- 
ment store,  while  sales  persons  may  get  away  with  it 
once  in  a  while,  will  ultimately  result  in  the  loss  of  a  cus- 
tomer. Convey  all  thoughts  sincerely,  let  the  expression 
of  your  eye,  of  your  face,  of  your  mouth,  show  the  sin- 
cerity of  every  word  which  you  wish  the  prospective  cus- 
tomer to  believe.  Friendship  can  only  be  created  and  held 
by  sincerity.  Insincere  thought  creates  transmission  of 
negative  thought.  No  matter  how  you  may  try  to  adjust 
the  features  of  your  face  to  convey  that  you  are  sincere, 


208  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

only  a  born  artist  in  the  art  of  contorting  the  face  can  suc- 
ceed at  this. 

Sincerity,  if  it  is  supported  by  any  argument  of  power 
that  will  induce  the  purchase  of  merchandise,  not  only  cre- 
ates confidence  in  the  buyer,  but  is  the  means  of  creating 
a  friend.  Friendship,  in  the  retail  business,  results  in  a 
personal  following  to  the  sales  person.  This  is  a  great 
asset,  not  alone  to  the  sales  person,  but  to  the  employer  as 
well. 

Enthusiasm. —  All  the  necessary  requisites  for  sales- 
manship heretofore  mentioned  are  necessary  to  support 
enthusiasm.  There  can  be  no  enthusiasm  where  love  of 
labor  does  not  exist.  Interest  in  work  must  be  displayed 
in  every  move  and  every  action.  The  greater  the  interest 
in  the  undertaking,  the  greater  the  flow  of  enthusiasm. 
The  open  mind  of  the  customer  will  readily  take  on  the 
same  enthusiasm  as  that  displayed  by  the  sales  person. 
This  should  not  be  interpreted  as  meaning  that  the  sales 
person  should  overdo  her  enthusiasm  to  the  extent  of  rav- 
ing over  the  article  offered  to  the  customer.  But  there 
should  be  sufficient  enthusiasm  to  create  the  desire  for  the 
article. 

Sales  persons  are  known  occasionally  to  get  into  a  rut. 
Enthusiasm  becomes  lacking,  ambition  seems  to  cease. 
This  is  generally  brought  about  more  by  personal  affairs 
than  by  daily  business  transactions.  If  a  sales  person  exe- 
cutes her  duties  sincerely,  the  merchandise  in  the  depart- 
ment will  be  moving  so  rapidly  that  there  will  be  new  mer- 
chandise coming  in  so  fast  that  sufficient  food  for  enthusi- 
asm is  constantly  replenished. 

Keep  to  ethics.  Do  not  tell  a  prospective  purchaser  how 
bad  a  competitor's  merchandise  is.  On  the  contrary,  tell 
the  good  qualities  and  demonstrate  why  your  own  mer- 
chandise is  so  far  superior  that  it  would  be  to  the  cus- 
tomer's advantage  to  purchase  from  you.  Never  mention 


TURNOVER  209 

a  competitor 's  name  unless  you  are  approached  on  the  sub- 
ject by  a  customer.  Then  politely  and  courteously  bring 
your  customer  back  to  the  subject  of  purchase,  eliminating 
discussion  of  the  competitor. 

Determination. —  Perhaps  the  term  "  determination  " 
applied  here  may  be  analogous  to  what  has  been  written 
previously.  To  be  successful  in  any  undertaking,  ambition 
must  be  created.  The  proportions  to  which  success  must 
be  attained  will  be  the  sincerity  of  ambition.  Where  sin- 
cerity becomes  very  prominent  it  takes  on  an  aspect  of 
determination.  When  ambition  has  been  aroused  and  this 
ambition  is  supported  by  a  real  heart-felt  sincerity,  brain 
power  becomes  of  a  determined  type.  Such  determina- 
tion cannot  be  satisfied  until  the  objective  has  been  accom- 
plished. A  person  may  be  honest  with  himself,  may  have 
plenty  of  initiative,  may  have  extraordinary  merchandise 
knowledge,  be  sincere  in  every  undertaking,  even  enthusi- 
astic at  times,  but  unless  all  this  is  supported  by  a  de- 
termined mind  to  reach  the  goal  of  success,  that  success 
will  never  be  accomplished  and  the  man  will  end  in  dismal 
failure. 

Determination  is  a  very  fair  representative  of  a  person's 
will  power,  the  power  of  thinking,  and  execution.  After 
all  is  said  and  done,  whether  it  is  in  salesmanship  or  any 
other  branch  of  commercial  work,  the  one  who  is  a  "  doer  ' ' 
is  the  class  of  help  wanted  and  requisite  to  the  success  of 
organizations. 


210  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

TURNOVER  FOR  YEAR  1918 

A  DEPARTMENT  STORE  IN  TEXAS 

Art  Goods 

Beauty  parlors  and  hair  goods 

Bargain  basement  (all  stock) 

Books 

Boys'  clothing. . 

Cafe" 

China  and  glassware 

Cigars .,, 

Corsets 

Candy 

Draperies '. 

Fountain 174 

Furniture 3  2-5 

Furs 11  3/10 

Hoover  sweeper 9 

House  furnishings 4 

Infant's  wear 5J^ 

Jewelry 3  9/10 

Kimonos  and  house  dresses 3% 

Kodaks 9 

Ladies'  gloves 1  % 

Ladies'  suits 16 

Ladies'  waists 31 

Ladies'  hose .      3  3/5 

Ladies'  knit  underwear 3  J^ 

Ladies'  handkerchiefs 4  1/10 

Ladies'  coats  skirts 10 

Ladies'  sweaters 25 

Ladies'  dresses 11  1/10 

Laces  v 1  % 

Leather  purses 8 

Men's  clothing 2  8/10 

Men's  hats 5 

Men's  furnishings 3 

Misses'  suits  and  dresses 11  2/5 

Millinery 10^ 

Muslin  underwear 6 

Notions 5 

Patterns 3J^ 

Pianos 1M 

Picture  frames 2  3/10 

Ribbons 1M 

Rugs  and  carpets 4% 

Shoes — Boys' 3 

Shoes — Ladies' 

Shoes — Men's 2% 

Shoes — Misses'  and  children's 2 

Sewing  machines 2  2/5 

Silks  and  velvets 2  9/10 

Stationery 4>£ 


TURNOVER 


211 


A  DEPARTMENT  STORE  IN  TEXAS — Continued 

Silverware 1  }/£ 

Trunks  and  Bags 414 

Trimmings 2 

Toilet  sundries 2  7/10 

Toys 5 

Umbrellas  and  Parasols 3  3/10 

Victrolas 13 

Victor  records 5 

Wash  goods  and  blankets 534 

White  goods  and  linens 4 

Woolens  and  dress  goods 2  1/10 

TOTAL  HOUSE  TURNOVER 4J^ 

TURNOVER  FOR  YEAR  1918 
A  DEPARTMENT  STORE  IN  OHIO 

Art 1  7/10 

Bedding 2  9/10 

Books ' 2  4/10 

Boys'  clothing 2  9/10 

China  and  cut  glass 1 

Corsets 2  4/10 

Dress  goods 1  }/£ 

Domestics 2  6/10 

Furs 1  7/10 

Gloves 1  9/10 

Groceries 2  4/10 

House  furnishings 1  6/10 

Ho-siery 3  9/10 

Handkerchiefs 2  35/100 

Infant's  wear 2 

Jewelry 1  45/100 

Junior  and  children's 3  42/100 

Knit  underwear,  ladies' 2  56/100 

Ladies'  neckwear 2  8/10 

Ladies'  suits 4% 

Ladies'  coats 4  37/100 

Ladies'  skirts 4  21/100 

Ladies'  dresses 3  67/100 

Laces  and  embroideries 1  6/10 

Linings 2 

Leather  goods 3 

Luggage 2 

Men's  hats 1  34/100 

Men's  furnishings 2  26/100 

Men's  clothing 2  58/100 

Millinery 5 

Muslin  underwear 2 

Notions 2 


212   EETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 


A  DEPARTMENT  STORE  IN  OHIO — Continued 

Patterns 2 

Petticoats  and  house  dresses 3  36/100 

Ribbons 1  38/100 

Rugs  and  draperies 1  29/100 

Shoes 2  29/100 

Silverware 1  33/100 

Silks 1  7/10 

Sewing  machines 2  28/100 

Stationery 1  45/100 

Teas  and  Coffees 8  45/100 

Toilet  goods 4 

Toys 2  50/100 

White  goods  and  linens 1  9/10 

Umbrellas 2  21/100 

Waists  and  kimonos 3  17/100 

Wall  paper  and  decorating 1  89/100 

Downstairs  ready  to  wear 4  93/100 

Downstairs  millinery 4  1/5 

Downstairs  shoes 2  29/100 

ALL  STOCKS ^ 2  24/100 


6  F/10 

2M 
3  9/10 


TURNOVER  FOR  YEAR  1918 

A   SPECIALTY   STORE   IN   PENNSYLVANIA,   BUSINESS   APPROXIMATELY 

$4,500,000. 

Children's  dresses 

Gloves 

Furs 

Hosiery 

Infant's  wear 

Junior  coats 

Kimonos  and  silk  underwear 

Ladies'  coats 

Ladies'  dresses. ., 

Ladies'  skirts 

Ladies'  suits 

Ladies'  waists 

Millinery 21  6/10 

Petticoats 6  9/10 

Basement  coats 8  1/6 

Basement  dresses 11  6/10 

Basement  suits 12  9/10 

ALL  STOCKS  TURNOVER 7  1/5  times 


4  1/6 

5  5/10 
4 

7  6/10 


7  6/10 

9 

9 


TURNOVER 


213 


TURNOVER  FOR  YEAR  1917 

A  DEPARTMENT  STORE  IN  LONDON,  ENGLAND 

THE  TURNOVER  UNDER  AMERICAN  METHODS  FOR  ALL  STOCKS 

Upstairs  departments 4% 

Downstairs  departments  average 4%  to  17 

Stocks  both  upstairs  and  downstairs. . .   9 

The  turnover  in  England  is  spoken  of  as  TRADE  or  SALES 

It  will  be  interesting  to  know  that  the  cost  of  advertising  this 
volume  of  business  stands  about  1%  per  cent  to  2  per  cent.  The 
total  burden  for  the  whole  business  was  in  the  neighborhood  of  17  to 
18  per  cent. 


DEPARTMENTS 


Silks 567,530 

Velvets 

Colored  dress  goods 

Black  dress  goods 507,465 

Flannels 

Plain  cottons 

Fancy  cottons 299,995 

Paper  patterns 

Linings '. . .  20,015 

Household  linen,  towels 

Blankets 

Down  quilts  and  bed  spreads 330,110 

Fancy  and  bed  linens 

Tunics,  real  laces 

Cut  laces . 139,850 

Embroideries 

Veilings 42,500 

Lace  neckwear 1 

Silk  neckwear  and  scarves J        1 14,995 

Ribbons 140,120 

Men's  hankerchiefs 

Ladies'  handkerchiefs 250,435 

Men's  gloves 

Ladies'  leather  goods 

Ladies'  fabric  gloves 289,445 

Children's  gloves 

Knitted  coats 

Shawls  and  scarves 202,555 

Ladies'  cotton,  wool  and 

Fibre  hose 

Ladies'  silk  hose 565,140 

Children's  hosiery 

Ho-less  hose. . . 


2.8 
2.5 

1.5 
.1 

1.6 

.7 
.2 

.5 

.7 

1.2 
1.4 
1 
2.8 


214   RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 


DEPARTMENTS 


PER  CENT  OP 
TOTAL  BUSINESS 


Cotton  and  wool  woven  underwear  . . 

Ladies'  woven  knickers 

Silk  woven  underwear 367,300 

Children's  woven  underwear 

Haberdashery 

Hair  combs 

Trimmings  and  belts f       444,990 

Buttons 

Sunshades,  Sticks 

Umbrellas 162,560 

Ladies'  nightgowns  and  pajamas. . . . 

Muslin  underwear 252,575 

Children's  underlinens 

Overalls — Ladies'  and  children's .... 

Nurse  outfitting  and  aprons 202,610 

Infants'  millinery 

Infants'  indoor  garments 152,360 

Infants'  outdoor  garments 

Petticoats 124,390 

Bathing  dresses \ 

Layettes /         72,825 

Corsets 

Mantles  upto  84s 130,110 

Mantles  over  84s 457,065 

Costumes  and  gowns 

Special  order 

Workrooms 

Raincoats 

Gowns  up  to  84s 1,040,310 

Gowns  over  84s 

Coats  and  skirts  over  84s 

Workroom  stock 

Skirts 

Girls'  coats  and  skirts 

Girls'  coats [       190,115 

Girls'  dresses 

Blouses 

Blouses  O.  S [       814,725 

Blouses,  robes 

Tea  gowns,  negligees 142,660 

Muffs,  stoles,  etc 

Fur  coats 

Feather  boas 552,530 

Storage 

Trimmed  millinery 

Girls'  millinery 

Untrimmed,  millinery,  flowers, [       790,005 

Feathers. .  


1.18 

2.2 

.8 
1.3 

1 

.8 
.6 
.4 

.6 
2.3 

5.2 


.9 

4 
.7 

2.6 
3.9 


TURNOVER 


215 


DEPARTMENTS 


DOLLARS 


PER  CENT  OP 
TOTAL  BUSINESS 


Men's  suits ] 

Men's  overcoats 377,465 

Dress  cloches,  dressing  gowns 

Men's  bespoke  clothing 

Bespoke  workrooms  stock 47,545 

Motor  clothing 

Motor  cars 145,100 

Motor  bicycles 

Juvenile  clothing  (over  7  years) 

Little  boys'  clothing  under  7  years ....         255,210 

Boys'  outfitting 

Cycles  and  cycle  accessories 102,365 

Motor  accessories 

Men's  outfitting 1 

Flannel  shirts  and  pajamas I 

Men's  underwear [       387,490 

Men's  socks J 

Men's  hats  and  caps 37,485 

Men's  boots  and  shoes 114,970 

Ladies'  shoes  over  20s 

Ladies'  shoes  up  to  20s 462,480 

Children's  boots  and  shoes 

Clocks 

Jewelry 242,555 

Fancy  jewelry 

Elector  plate  and  silverware 155,135 

Fancy  leather  goods,  purses,  etc \ 

Bags,  leather  and  silk /       199,895 

Cutlery 122,505 

Optical  goods. 42,440 

Photographic  goods 

Stationery 

Table  decorations 299,875 

Art  materials 

Books 

Maps,  atlases 152,560 

Post  cards 

Art  needlework 

Needlework  accessories 215,020 

Lamp  shades 30,015 

China ] 

Glass. 182,485 

Fancy  china  and  oriental J 

Electrical  and  lighting 52,490 

Hardware 1 

Turnery,  brushes  and  baskets >       267,400 

Fancy  ironmongery ] 


1.9 

.2 

.7' 

1.3 
.5 

1.9 

.2 
.6 

2.3 
1.2 


.6 
.2 


1.5 

.8 

1 
.1 

.9 

.3 

1.3 


216  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 


DEPARTMENTS 


DOLLARS 


PER  CENT  OP 
TOTAL  BUSINESS 


Lace  curtains 

Soft  furnishings 110,100 

Gramophones  and  records 

Pianos. 327,395 

Sheet  music 

Toys,  games,  dolls,  p'rams 165,100 

Sports,  flags 69,960 

Trunks \ 

Bags  and  suit  cases I       147,605 

Perfumes  and  toilet  preparations 

Toilet  brushes '. 

Drugs,  toilet  articles 684,895 

Drugs,  workroom  stock,  surgical 

appliances j 

Hair  goods,  hairdressing 125,320 

Natural  flowers ] 

Confectionery \      437,520 

Confectionery  workroom  stock J 

Soda  fountain 139,985 

Luncheon  hall 420,005 

Zoplpgical 12,495 

Millinery  (extension) 

Blouses  (extension) 

Tobacco  and  cigars 330,055 

Coal 107,365 

Men's  hairdressing 32,505 

Grocery 1,370,325 

Provision  (cheese,  bacon,  butter) 585,160 

Meat 479,535 

Fish \ 

Poultry. . . . /       267,525 

Fruits  and  vegetables 232,420 

Flowers - 67,310 

Bakery  and  pastries \ 

Cooked  meats J       450,105 

Wines  and  liquors \ 

Beers  and  minerals /       182,605 

Quick  lunch  buffet 52,505 

Total  business  was 20,157,770 


.5 
1.6 

.8 
.3 

.7 
3.4 

.6 
2.2 

.7 
2.1 


1.6 
.5 
.1 

6.8 
2.9 


1.3 

1.1 

.3 

2.2 

.9 
.2 


TURNOVER  217 


THE  ANNUAL  TURNOVER  FOR  DEPARTMENT  STORES 

DEPARTMENTS                                                     YEARLY  TURNOVER 

Art  goods  and  needlewokr 2H 

Blouses  and  waists  (ladies) 9 

Boy's  clothing 2J^ 

Beddings 3 

Books 2% 

Candy. 14 

Coats,  children's J^ 

Corsets • 4^ 

China  and  glassware 2 

Children's  dresses _ 4J^ 

Carpets,  rugs  and  all  floor  coverings 2J^ 

Dress  goods 3 

Domestics 3 

Embroideries  and  Laces 2J^ 

Fountain 135 

Furniture 3% 

Furs 4 

Gloves. 3 

Groceries 10 

Handkerchiefs 3J^ 

Hosiery 4 

House  furnishings 2^ 

Hairgoods. 3^£ 

Hats  (men  and  boys') 4 

Infant's  wear 3 

Jewelry 3 

Knit  underwear  (men  and  women's) 3 

Kimonas  and  house  dresses 3 

Ladies'  coats 5J^ 

Ladies'  suits 5 

Ladies'  dresses 5^4, 

Ladies'  silk  underwear 3J^ 

Ladies'  neckwear , 4 

Ladies'  sweaters 5J^ 

Ladies'  linens 3J^ 

Linings 3% 

Leather  goods 3% 

Men's  clothing 2% 

Men's  furnishings 3 

Millinery 7^ 

Muslin  underwear 3J4 

N  otions 4 

Patterns 4% 

Picture  frames 2 

Petticoats 6 

Pianos 1% 

Ribbons 2J^ 

Silverware 1  % 

Stationery 2% 

Sewing  machines 2% 


218  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 


DEPARTMENTS  YEARLY  TURNOVER 

Silks  and  velvets 3 

Skirts 7 

Shoes,  Men's 2^ 

Shoes,  Ladies' 2% 

Shoes;  children's  and  boys' 3 

Sporting  goods 3 

Trunks  and  bags 3J4 

Toys 4 

Toilet  Sundries , 3  J4 

Trimmings 2^ 

Umbrellas  and  parasols  and  sticks 4 

Veilings 3 

Wall  paper  and  decorations 2% 

Wash  goods 4 

ALL  STOCK  OR  HOUSE  TURNOVER.  .  . .  5  times 


CHAPTER  IX 

MERCHANDISING 

Merchandise  Control. —  That  a  certain  quantity  of  the 
stocks  on  hand  must  inevitably  go  to  the  mark  down  is  con- 
ceded by  every  modern  merchandiser.  When  to  do  it,  and 
how  to  do  it,  and  why  it  should  be  done  is  prompted  by 
the  knowledge  of  the  quantity  and  its  mark  up  value  on 
hand.  To  know  the  value  and  mark  up  of  stocks  on  hand 
daily  is  the  essence  of  merchandising.  It  therefore  be- 
hooves good  management  to  conduct  its  control  of  stocks 
by  the  best  obtainable  accounting  systems.  The  control 
may  be  at  cost  or  at  retail,  but  since  all  stocks  are  manipu- 
lated at  retail  value,  it  becomes  necessary  to  control  all 
stocks  accordingly.  Further,  all  percentages,  whether 
profits,  or  otherwise  calculated  on  the  sales,  enhance  the 
necessity  of  knowing  the  retail  value  of  stocks. 

The  requisites  for  control  are  -as  follows : 

Inventory  beginning  of  day,  per  cent  mark  up. 
Purchases  daily,  per  cent  mark  up. 
Purchases  to  date  (fiscal  year),  per  cent  mark  up. 
Mark  downs  daily. 
Mark  downs  to  date 
Sales  daily. 
Sales  to  date. 

Inventory  ending  of  day,  per  cent  mark  up. 
Planned  sales  for  the  week. 
Planned  sales  for  the  month. 
Best  previous  month 's  sales  to  beat. 
Best  previous  sale  day  to  beat. 
Sales  for  the  day  last  year. 
Daily  sales  required  to  meet  plan. 

219 


220  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

Daily  average  sales. 

Sales  for  the  month  last  year. 

Sales  to  date  last  year. 

Planned  per  cent  mark  up  to  close  month. 

Planned  per  cent  mark  up  to  close  season. 

Planned  stock  to  close  month. 

Planned  stock  two  month  advance. 

Open  to  buy. 

Orders  placed  to-day,  delivery  this  month. 

Orders  placed  to-day,  delivery  next  month. 

Orders  placed  to-day,  future  delivery  and  on  call. 

Outstanding  orders. 

Reserve  stock  in  warehouse. 

Eeserve  stock  in  department. 

Prices  of  merchandise  in  stock  (by  departments). 

Best  selling  prices  (by  departments) . 

Sales  by  prices  this  week. 

Sales  by  prices  for  the  month. 

Sales  by  prices  last  year  for  the  month. 

Open  to  buy  by  prices  in  volume  of  money. 

Open  to  buy  by  pieces.  . 

From  the  foregoing  it  will  readily  be  seen  that  the  ques- 
tion of  merchandising  does  not  merely  take  on  the  exchange 
of  merchandise  for  gold,  but  presents  a  scientific  problem 
in  meeting  competition.  Aside  from  the  sale  of  commodity 
of  demand,  it  includes  the  promotion  of  circulation  of 
capital. 

Details  of  Merchandising. —  It  must  be  admitted  that 
essential  to  obtain  the  information  required.  There  is  con- 
siderable objection  in  many  organizations  against  elaborat- 
ing upon  accounting  to  obtain  information.  But  to  elimi- 
nate this  necessary  information  is  to  merchandise  blindly 
and  to  limit  the  volume  of  annual  sales.  The  most  import- 
ant detail  of  an  office  in  retailing  organizations  is  the  mer- 


MERCHANDISING  221 

chandising  control.  The  auditing  and  general  bookkeep- 
ing is  not  difficult  though  the  enumeration  of  the  necessary 
requisites  here  mentioned  appear  to  be  voluminous. 

Inventory  Beginning  (Md$e.  Control}. —  The  inception 
of  any  procedure  must  have  its  base.  Especially  is  this  one 
•of  the  requirements  in  the  calculation  of  stock  manipula- 
tions of  the  various  departments  carried  on  in  department 
stores  or  specialty  shops.  The  value  of  such  stocks  is  a 
secondary  consideration,  since  its  effectiveness  for  merchan- 
dising purposes  is  gaged  by  the  percentage  of  mark  up. 
To  clarify  this,  reference  is  made  to  stocks  that  are  known 
as  style  merchandise  —  such  as  women's  outer  apparel, 
domestic  and  piece  goods,  better  known  as  yard  goods, 
gauged  by  the  length  of  time  in  stock,  period  furniture, 
novelties,  etc.  The  percentage  of  mark  up  and  the  age  of 
the  stock  are  given  very  serious  consideration  in  sales  pro- 
motion. Should  the  stocks  at  the  beginning  of  a  period  be 
marked  at  a  low  percentage,  the  buyer  of  the  department 
would  be  obliged  to  make  a  quick  turn  over  of  the  stocks 
for  the  beginning  period.  Otherwise  all  merchandise  pur- 
chased at  higher  mark  ups  would  be  lowered  until  such 
time  as  the  turnover  of  old  stocks  at  low  mark  ups  should 
be  accomplished. 

Daily  Purchases. —  The  stocks  on  hand  with  the  begin- 
ning of  the  day's  business  should  be  a  known  quantity. 
The  percentage  of  mark  up  must  never  be  overlooked. 
Added  thereto  are  the  purchases  for  the  day,  department- 
ally.  The  percentage  of  mark  up  must  be  within  the 
requirements  of  the  house  policy.  The  percentage  of  gross 
profit  must  be  changed  monthly  to  fit  in  their  natural 
requirements  of  the  community  or  with  the  season  of  the 
year.  Exception  to  this  principal  of  mark  up  is  taken 
where  a  special  purchase  is  made  to  sell  at  a  small  margin 
of  profit  to  stimulate  trade  or  to  give  something  for  noth- 
ing, metaphorically  speaking. 


222  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

To  possess  the  knowledge  of  the  daily  conditions  of  new- 
stock  arrivals,  and  its  mark  up,  brings  the  attention  of  mer- 
chandise managers  to  the  manner  in  which  stocks  are 
replenished,  whether  or  not  the  required  mark  is  main- 
tained, whether  or  not  a  department  is  becoming  overbur- 
dened with  more  merchandise  than  its  healthy  condition 
will  permit.  It  is  conceded  that  a  department  at  the  begin- 
ning of  its  season  will  carry  a  much  heavier  stock  than 
when  the  season  for  its  sales  is  well  under  way.  But  even 
then,  the  maximum  quantity  for  such  period  should  be 
established  and  controlled. 

In  addition  to  the  knowledge  of  daily  purchases,  the 
accumulation  of  such  purchases  for  the  season  or  year 
receives  prominent  attention.  It  may  be  that  the  season 
has  but  a  short  time  to  run,  so  that  purchases  must  be  on 
the  decline.  Or  sales  may  not  be  coming  up  to  expecta- 
tions and  necessitate  the  cancellation  of  open  orders  for 
reason  of  a  backward  season.  Or  perhaps  the  accumula- 
tive purchases  are  not  sufficient  to  meet  the  demands  for 
the  volume  of  business  a  department  is  accomplishing.  The 
accumulative  mark  up  is  a  requirement  not  only  to  control 
the  differences  of  the  accumulative  mark  downs  explained 
later.  The  closing  of  the  fiscal  year  also  requires  a  read- 
justment of  the  value  of  the  stocks  on  hand  for  financial 
as  well  as  merchandising  purposes. 

For  example,  a  department  closes  the  season  or  year  with 
a  stock  on  hand  of  $100,000  with  a  mark  up  of  25  per  cent 
profit.  The  assumption  will  be  that  the  cost  of  such  stock 
is  $75,000.  The  question  from  a  financial  view  point  is 
whether  the  stocks  are  really  worth  $75,000  at  cost.  Con- 
siderable mark  downs  may  have  to  be  taken,  or  market  con- 
ditions may  have  depreciated  the  cost  value.  Assuming 
that  the  department  had  an  accumulative  mark  up  of  35  per 
cent  and  that  the  stock  at  closing  was  $100,000,  the  cost  of 
such  stock  at  closing  should  be  considered  at  65  per  cent  or 


MERCHANDISING  223 

$65,000,  giving  a  better  and  true  valuation,  rather  than  an 
appreciative  value. 

Cost  -f  profit  =  100 %         $100,000 
%  profit  35%  35,000 


Cost  65%  $65,000 

Mark  Downs  (Daily  and  Accumulative). —  To  eliminate 
mark  downs  in  modern  merchandising  would  be  a  colossal 
undertaking.  Much,  however,  can  be  made  unnecessary  by 
the  quick  turnover  of  stocks.  Its  record  must  carefully 
be  followed  up  and  it  should  be  incumbent  on  the  part  of 
the  buyer  to  report  mark  downs  daily,  whether  taken  or 
not,  thus  keeping  each  department's  daily  procedure  in 
touch  with  this  important  feature.  It  has  been  shown  that 
merchandising  control  requires  a  daily  and  accumulative 
percentage  mark  up  on  all  purchases.  The  mark  downs 
daily  and  accumulative  are  kept  in  a  like  manner,  showing 
the  value  and  percentage  marked  down  from  the  original 
mark  up. 

A  department's  accumulative  purchases  may  present 
mark  ups  of  33  1/3  per  cent.  The  mark  downs  to  date 
represent  reductions  taken  to  the  extent  of  10  per 
cent,  making  the  inventory  mark  up  of  23 1/3  per  cent. 
If  the  required  mark  up  is  30  per  cent,  it  will  be  demon- 
strated readily  that  the  department  is  conducting  its 
affairs  at  a  loss.  Again,  a  buyer  may  boast  of  the  wonder- 
ful mark  up  of  his  stocks  and  turnover.  But  consideration 
of  the  mark  down  may  not  enter  into  the  mind  of  the  buyer 
in  his  braggadocio  until  attention  is  directed  to  it  by  the 
merchandising  manager.  In  calculating  mark  downs,  the 
inventory  beginning  is  increased  by  the  merchandise  pur- 
chased and  reduced  by  mark  downs  taken,  thus  giving  the 
stocks  on  hand  from  which  sales  may  be  produced  at  its 
net  percentage  of  profit. 


224  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

A  fallacy  in  the  proper  control  of  merchandise  is  the 
reduction  of  stocks  on  the  ftoor  without  recording  the  mark 
down  upon  the  merchandising  records.  This  generally 
occurs  by  lowering  the  price  to  effect  a  sale  passed  upon 
by  the  buyer,  but  not  reported  to  the  accounting  depart- 
ment. Whether  this  is  often  repeated  or  not,  the  fact 
remains  that  it  has  been  done.  Immediately  the  control 
is  effected  and  a  loss  to  departments  will  occur  in  setting 
up  a  profit  and  loss  statement  either  at  the  month  ending 
or  the  fiscal  year.  It  may  also  show  up  as  a  shortage  in 
inventory. 

The  transferring  of  merchandise  from  one  department  to 
another  is  accompanied  by  a  mark  down.  The  correct  pro- 
cedure in  transfer  stock  should  be  as  follows : 

Dept,  1.  Transfer  to  department  2,  $400  at  cost,  $500  at 
retail. 

Dept.  1.     Stock  is  reduced  $400  cost  and  $500  retail. 

Dept.  2.     Buys  from  department  1  the  stock  for  $300. 

Dept.  1.  Takes  a  mark  down  of  $200  at  retail,  charging 
the  retail  loss  to  department  1. 

Dept.  2.  Purchases  for  $300  the  stock,  which  is  the  cost, 
and  then  marks  up  the  stock  in  the  same  man- 
ner as  new  merchandise  purchased  from  a 
manufacturer. 

Sales  (Merchandise  Control}. —  For  the  purpose  of 
merchandising  control,  the  net  sales  only  are  to  be  con- 
sidered in  the  reduction  of  stocks  on  hand.  The  term  net 
sales  signifies  sales  less  returns.  It  is  accomplished 
through  the  daily  audits  of  sales  checks  on  the  merchan- 
dise control  sheet  as  shown  in  Forms  19  and  23  and  24. 
An  extra  column  is  provided  for  accumulated  sales  for  the 
month  and  period.  The  purpose  of  this  is  to  place  the 
management  in  a  position  to  draw  readily  comparison 
between  the  accumulative  purchases  and  the  accumulative 


MERCHANDISING  225 

sales.  A  stipulated  departmental  mark  up  being  con- 
stantly borne  in  mind,  a  marginal  difference  can  at  all 
times  be  approximated  at  a  glance  in  the  comparison.  Over 
buying  must  result  in  unnecessary  mark  downs  and  the 
elimination  of  profits.  It  is  as  important  to  keep  closely 
in  touch  with  the  accumulated  purchases  as  it  is  with  the 
mark  downs  in  the  marginal  difference  with  the  net  sales 
of  a  department. 

Inventory  Ending  (Daily). —  As  outlined  on  Forms 
23  and  24,  the  inventory  ending  at  the  close  of  busi- 
ness for  the  day  is  ascertained  with  its  percentage  of  mark 
up.  To  summarize  this  is  but  to  follow  the  heading  of  the 
form.  It  is  begun  by  taking  the  inventory  beginning  with 
the  fiscal  year  at  cost  and  retail.  Daily  add  thereto  the 
purchases  at  cost  and  retail.  To  obtain  new  mark  up,  add 
or  deduct  merchandise  transferred  from  one  department 
to  another  as  the  case  may  be,  deduct  -mark  downs,  add 
additional  mark  up,  which  mark  up  is  to  be  written  up  in 
red  ink,  deduct  sales,  and  the  result  is  the  inventory  end- 
ing. Form  23  is  the  daily  working  sheet  for  each  depart- 
ment. Form  24  is  the  recapitulation  of  all  working 
papers  and  is  the  only  form  to  be  consulted  by  merchandis- 
ing managers. 

Planned  Sales  for  the  Week  and  Month. —  To  accom- 
plish an  object  successfully,  thought  must  be  given  to  that 
specific  object  in  an  analytical  form.  The  accomplishment 
of  the  objective  rests  upon  the  predetermination  to  win  the 
goal.  The  objective  in  planning  sales  from  a  merchandis- 
ing view  has  two  divisions ;  one  being  the  method  in  which 
the  objective  may  be  attained,  the  other,  the  volume  in 
money  representing  the  goal. 

Here,  the  interest  is  centered  in  the  volume.  As  a  basis, 
the  sales  for  the  corresponding  week  a  year  ago  is  kept  in 
mind.  Depending  upon  the  season  of  the  year  rest  the 
sales  promotion  methods  to  be  employed  to  support  the 


226  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

volume  of  business  planned.  The  natural  course  of  events 
and  the  economic  conditions  of  the  community  may  influ- 
ence the  increase  of  volume.  If  these  conditions  are  en- 
couraging, it  should  not  be  sufficient  to  rest  upon  such 
expectations.  An  undying  struggle  in  the  minds  of  all 
buyers  is  how  to  increase  the  volume  for  a  period  cor- 
responding to  that  of  last  year.  In  planning  all  sales,  the 
volume  to  cover,  by  a  good  margin,  becomes  paramount.  To 
remain  at  the  same  volume  of  business  means  to  stand  still. 
This  is  interpreted  as  going  backwards  in  a  retail  establish- 
ment. 

It  is  not  sufficient  to  plan  for  the  week.  You  must  plan 
for  the  month  as  well,  thus  enabling  a  department  to 
retrieve  itself  in  instances  where  certain  weeks  have  not 
come  up  to  expectations.  Volume  is  always  uppermost  in 
the  minds  of  those  planning  the  sales,  knowing  that  the 
percentage  of  burden  is  diminished  when  sales  increase. 

Best  Month  to  Beat. —  The  planning  of  sales  to  excel 
that  of  the  corresponding  month  of  the  previous  year  does 
not  in  itself  adequately  answer  the  purpose.  Not  alone 
must  the  month  of  the  previous  year  be  excelled,  but  the 
best  month  of  corresponding  prior  years  must  be  beaten. 
In  retailing,  there  very  often  occurs  what  is  known  as  an 
"  off  year,"  which  is  within  the  meaning  of  a  backward 
season.  It  can  readily  be  understood  that  there  should  be 
little  difficulty  in  excelling  the  volume  of  such  seasons.  It 
therefore  behooves  the  buyer  not  to  overlook  prior  seasons ' 
best  sales.  To  eliminate  them  would  be  detrimental  to  the 
department  as  a  factor  in  retail  distribution  of  its  com- 
modity to  the  community,  and  its  prestige  would  be  placed 
in  jeopardy.  An  analysis  of  old  establishments  gone  back- 
ward will  conclusively  prove  that  their  sales  to  a  great 
measure  have  been  retarded  by  virtue  of  neglecting  prior 
years'  records  of  accomplishment  in  planning  both  sales  in 
volume  and  an  adequate  meeting  of  the  demand  in  price, 
quality,  and  style  stability. 


MERCHANDISING  227 

Daily  Sales  to  Meet  Plan. —  As  a  guide  to  be  in  keep- 
ing with  the  sales  planned  for  the  month,  the  average  sales 
for  each  day  are  determined.  Plans  for  selling  are  con- 
cluded accordingly.  To  determine  the  average  for  the  day, 
the  number  of  business  days  divided  into  the  planned  sales 
for  the  month  will  give  as  a  quotient  the  average  sales  for 
each  working  day.  The  planned  sales  for  the  month  is  by 
no  means  an  arbitrary  figure.  Though  it  is  in  a  measure 
approximated,  statistics  of  well  organized  accounting  offices 
will  enable  a  statistician  to  set  up  sales  to  be  accomplished 
for  the  next  month  at  least  a  fortnight  before  the  first  of 
the  following  month. 

The  procedure  is  to  ascertain  the  volume  of  business  for 
the  month  planned,  corresponding  to  that  of  the  previous 
year.  The  rate  percentage  in  which  the  department  is 
increasing  its  sales,  plus  100  per  cent,  is  the  expected  vol- 
ume of  business.  It  may  so  happen  that  a  department  is 
making  exceptionally  rapid  strides  in  its  sales.  Or  the  direct 
opposite  may  be  the  case.  The  abnormal  percentage  for 
the  first  fortnight  of  the  current  month  prior  to  the  month 
in  planning  must  either  be  added  thereto  or  deducted  from 
the  previously  acquired  result.  All  of  these  calculations 
depend  upon  the  seasonable  demand  for  the  merchandise 
and  the  general  increase  of  business  of  the  organization  as 
a  whole.  To  obtain  accurately  the  percentage  of  increase 
of  sales  for  a  department,  cognizance  of  sales  increase  must 
be  taken  for  at  least  four  months  previous  to  the  month  in 
question  when  planning,  as  a  further  guide  to  accuracy. 

Planned  Per  Cent  Mark  Up  to  Close  Month. —  Mer- 
chandise fluctuates  in  its  demand,  regardless  of  its  supply, 
with  the  season  of  the  year  in  which  it  may  be  put  into 
use.  This  condition  makes  it  necessary  to  undulate  the 
mark  up  of  stocks.  The  largest  volume  of  sales  in  all 
department  stores,  with  but  few  exceptions,  is  that  of  outer 
apparel,  especially  feminine  attire.  Here  the  exemplifica- 


228  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

tion  of  mark  up  is  at  its  best.  The  reason  for  this  is  that 
the  merchandise  is  known  as  style  stocks,  and  it  must 
receive  its  turnover  more  rapidly  than  furniture  or  hard- 
ware to  accumulate  its  profit.  When  these  so-called  style 
stocks  are  in  demand,  the  profits  must  naturally  be  greater. 
A  particular  kind  of  street  dress  will  be  worth  more  in 
April  than  it  will  in  August,  or  a  summer  dress  made  to 
sell  during  the  months  of  July  and  August  will  not  bring 
the  same  price  in  October. 

To  estimate  profits  of  a  stock  made  for  a  particular 
period  that  has  passed  its  usefulness  as  a  commodity  is  like 
reaching  for  astronomical  phenomena. 

Hence,  the  mark  up  of  stocks  must  vary  each  month  of 
the  year.  Lest  it  be  overlooked,  though  certain  stocks  are 
reduced  for  seasonable  reasons  or  otherwise,  new  merchan- 
dise of  seasonable  demand  arriving  in  a  department  at  a 
greater  mark  up  will  have  a  tendency  to  increase  the  aver- 
age mark  up  of  stocks  carried  on  for  trade  in  a  department. 

Assuming  that  a  dress  department  is  located  in  a  large 
metropolis  in  an  eastern  state,  the  fluctuations  in  the  dress 
department  for  its  percentage  of  profit  on  mark  up  should 
be  as  follows  : 


January    .................. 

February    .................  30% 

March  .......  -.  ............  34% 

April  ............  .........  35% 

May  ......................  35% 

June  .....................  33% 

July  ......................  30% 

August  ...................  29% 

September  ........  ........  32% 

October  ...................  35% 

November.  .  .  ..............  35% 

December  ................. 


MERCHANDISING  229 

The  figures  here  mentioned  are  those  with  which  each 
month  is  planned  to  end.  Merchandise  may  be  placed  in 
stock  at  a  39  per  cent  rate  of  profit  on  selling.  It  may  be 
necessary  to  take  mark  downs  during  the  month,  in  which 
event  a  sufficient  margin  is  allowed  so  that  the  month  will 
close  with  the  planned  percentage  of  mark  up  profits. 

In  like  manner  is  the  closing  percentage  of  a  season 
regulated.  A  merchant  employing  buyers  will  regulate  the 
maximum  profits  permitted  and  will  expect  his  buyer  or 
department  manager  to  close  the  season  with  a  stipulated 
percentage.  There  cannot  be  a  universal  mark  up  to  close 
the  season  of  any  department.  The  geographical  location 
affects  this  percentage. 

Planned  Stocks  to  Close  Month. —  The  balance  sheet  of 
any  organization  will  disclose  the  amount  of  working  capi- 
tal in  use.  The  working  capital  permits  a  certain  volume 
of  business  to  be  carried  on  conveniently,  depending  upon 
the  turnover  of  the  stocks  carried  in  a  particular  trade.  If 
the  capital  of  a  store  is  $100,000,  it  may  conveniently,  under 
good  management,  conduct  a  volume  of  one  million  dollars 
in  sales  per  annum.  Should  that  same  organization  con- 
duct two  million  dollars  sales  for  the  year,  it  will  find  it 
necessary  to  borrow  another  hundred  thousand  dollars  or 
slightly  over. 

Poor  merchandising,  permitting  an  unnecessary  volume 
of  stock  to  be  carried,  endangers  the  working  capital  of  the 
store.  Each  overstocked  department  must  show  a  loss  for 
lack  of  turnover,  and  mark  downs  will  be  necessary  to  clear 
away  the  stock  to  make  room  for  seasonable  merchandise, 
or  for  want  of  cash. 

Thus  an  essential  in  merchandising  is  to  plan  the  volume 
of  stock  to  close  each  month  of  the  year,  all  of  which  is 
governed  by  the  sales  planned  for  the  month  and  actually 
made  during  the  month.  This  enables  the  buyer  to  take 
advantage  of  market  conditions,  lessens  the  mark  downs 


230   RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

by  reason  of  not  being  overstocked,  and  prevents  capital 
from  being  placed  in  jeopardy. 

A  step  further  may  be  taken  in  this  direction  by  plan- 
ning stocks  for  two  months  in  advance.  Consideration 
must  be  given  to  the  class  of  stock  which  is  being  planned 
and  its  usefulness  to  the  community.  Extraordinary  care 
must  be  taken  when  plans  are  made  for  two  months  or  over. 
All  past  year  records  should  be  scrutinized  before  deter- 
mining the  maximum  planned  stock. 

Merchandising  Open  to  Buy. —  When  to  buy  merchan- 
dise and  what  volume  to  buy  can  only  be  deduced  by  the 
sales  effected  or  by  the  rate  of  turnover  the  department  is 
accomplishing.  If  a  department  has  a  backward  season 
or  stock  cannot  be  made  to  move,  it  cannot  make  new  pur- 
chases, no  matter  at  how  much  below  the  market  value  stocks 
may  be  offered  for  sale  to  the  department. 

It  has  been  stated  in  the  chapter  on  turnover  that  pur- 
chases should  be  made  in  small  quantities  but  often  sup- 
ported by  the  sales.  To  know  how  much  to  buy  weekly  or 
every  fortnight,  the  planned  sale  is  the  first  requisite.  The 
second  is  the  accomplished  sale  and  the  rate  over  or  under 
the  planned  sales  for  the  period.  Third,  the  stock  on  hand 
and  the  usefulness  of  the  stock  to  the  community  in  accord- 
ance with  the  length  of  time  still  to  go  to  complete  the 
season  must  be  considered.  Discretion  must  be  exercised 
in  the  calculations  in  replenishing  stocks. 

It  will  be  found  that  the  modus  operandi  here  scheduled 
will  be  of  infinite  value  in  the  proper  guidance  of  scientific 
purchasing,  if  the  term  scientific  purchasing  can  be  applied 
appropriately.  This  particular  feature  of  merchandising, 
relating  to  volume  open  to  buy,  is  perhaps  given  more 
.attention  in  retailing  than  in  any  other  organized  business. 
It  is  the  protection  of  the  circulating  capital  that  is  care- 
fully guarded,  as  well  as  the  protection  for  profits.  Every 
protection  from  overstocking  must  be  resorted  to.  On  thia 


MERCHANDISING  .  231 

subject  it  may  be  argued  that  stocks  may  be  carried  over 
to  the  following  season  and  thus  eliminate  unnecessary 
losses.  This  has  been  tested  so  often  with  unsatisfactory 
results  that  it  is  fallacious  to  give  the  method  any  thought 
whatever. 

The  risks  taken  in  carried  over  stocks  lie  in  the  possibility 
of  their  becoming  shopworn,  of  decreased  demand,  change 
of  style,  moth  damages,  depreciation  in  value,  and  the 
interest  cost  on  money  value.  Greatest  of  all  is  the  dimi- 
nution of  working  capital. 

Orders  Placed  To-day  this  Month  Delivery. —  As  has 
been  shown,  actual  sales  affect  the  planned  sale's.  These 
two  elements  must  affect  present  purchases.  The  replen- 
ishing of  stocks  should  be  induced  by  the  turnover  and  not 
by  personal  feelings  for  style,  season  or  special  induce- 
ments. When  plans  are  promulgated  and  the  realization 
of  sales  as  planned  is  accomplished,  the  ratio  of  the  pur- 
chases against  sales  becomes  the  correct  guide.  Thus 
orders  that  are  placed  for  current  month  delivery  are 
charged  to  the  planned  purchasing  power  for  current 
month's  business. 

The  purchasing  power  for  second,  third  or  following 
months  are  retrospective  in  relation  to  actual  sales,  planned 
sales  and  stocks  on  hand.  There  exist  conditions  in  almost 
every  retail  establishment  where  orders  must  be  placed  for 
future  delivery  or  delivery  upon  call.  In  the  classification 
of  stocks,  in  certain  trades  where  the  commodities  are 
known  as  staple  stocks,  there  exists  more  or  less  of  a  fluc- 
tuating market.  Such  stocks  are  not  seasonable  merchan- 
dise, but  for  proper  replenishment  and  variety  and  as  a 
result  of  the  effect  of  economic  conditions,  it  becomes  neces- 
sary to  place  orders  considerably  in  advance.  The  placing 
of  orders  for  future  delivery  should  not  be  encouraged.  A 
study  of  the  department  requiring  orders  to  be  placed  for 
future  delivery  must  necessarily  show  a  smaller  turnover. 


232  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

Outstanding  Orders. —  A  competent  record  of  all  out- 
standing orders  becomes  an  important  factor.  An  out- 
standing order  with  a  manufacturer,  wholesaler,  importer 
or  jobber,  should  not  merely  be  considered  as  merchandise 
expected  to  be  received  in  the  department  at  a  specific 
date.  When  the  moment  orders  for  stocks  are  placed,  they 
become  a  part  of  the  available  stocks  to  carry  on  trade. 
The  available  stocks  are  those  that  are  in  the  department 
plus  open  orders  and  reserve  stock.  The  ratio  of  the  pur- 
chasing power,  obtained  from  actual  sales  compared  with 
the  planned  sales,  must  be  subordinate  to  the  available 
stocks.  To  lose  cognizance  of  this  condition  must  bring  on 
greater  stocks  and  absorb  profits  by  means  of  the  mark 
downs  and  result  in  a  greater  clear  way  than  the  end  of  the 
season  usually  permits.  In  the  calculation  of  all  merchan- 
dising problems,  a  correct  solution  in  promoting  sales  ideas 
can  only  be  terminated  when  the  available  stocks  have 
received  their  full  complement  of  thought.  From  a  finan- 
cial viewpoint,  it  is  obvious  that  the  circulating  capital 
is  courting  danger  should  all  departments  be  permitted  to 
place  orders  without  careful  consideration  being  given  to 
the  available  stocks. 

Control  of  Outstanding  Orders. —  The  control  of  open 
orders  is  dependent  upon  careful  follow  up  methods  exe- 
cuted by  a  clerk  realizing  the  responsibility  and  the  costly 
result  following  neglect  of  his  work.  There  are  many 
methods  in  use.  The  author  will  describe  one  that  has 
proven  itself  exceptionally  satisfactory. 

A  proper  form  of  order  is  to  be  determined  upon  to  fit 
in  with  the  department's  merchandise.  Such  stipulations  are 
on  the  order  blank  as  will  give  the  store  the  necessary  pro- 
tection and  liability  for  transportation,  charges,  quality, 
quantity,  value,  counter  signatures,  etc.  These  orders  are 
to  be  on  a  light  weight  paper  made  up  of  five  copies,  one 
going  to  the  manufacturer,  wholesaler,  jobber  or  exporter, 


MERCHANDISING  233 

and  the  others  to  the  receiving  department,  merchandising 
office  and  general  office,  with  a  copy  for  the  buyers. 

The  manufacturer's  copy  of  the  order  is  a  confirmed 
order  properly  signed  by  the  merchandising  office  or  a 
member  of  the  firm,  authorizing  the  order  and  making  bind- 
ing the  contract  between  the  store  and  the  vendor  for  all 
covenants  and  stipulations  contained  on  the  order. 

The  receiving  department's  copy  of  the  order  is  given  to 
this  department  after  the  order  has  been  confirmed.  It  may 
be  opportune  to  mention  that  all  orders  shoud  be  mailed  to 
the  vendor  from  the  firm  and  not  handed  to  the  vendor  by 
the  buyer,  unless  the  five  copies  are  made  by  the  buyer 
and  confirmed  by  the  proper  authority  upon  the  return  to 
the  store  by  the  buyer.  Copies  are  made  by  means  of  car- 
bon papers. 

The  receiving  department  will  maintain  a  file  (box  files 
or  accordion  files)  for  each  department,  placing  the  receiv- 
ing department  copy  of  order  in  the  proper  file,  alpha- 
betically arranged.  When  merchandise  is  received  com- 
pletely covering  the  order  placed,  the  copy  of  the  order  is 
attached  to  the  invoice  or  folder  containing  the  receiving 
date,  and  is  sent  to  the  general  office.  "When  but  a  part  of 
the  order  is  received,  the  value  of  such  shipment  will  be 
deducted  from  the  copy  of  the  order  to  show  the  balance  re- 
maining open.  Before  the  close  of  the  day,  the  receiving 
department  will  set  up  in  columnar  form  the  amount  of 
merchandise  received  by  the  various  departments  and  send 
this  report  to  the  merchandise  office. 

All  merchandise  received  is  deducted  from  the  total  out- 
standing, and  new  orders  are  added  thereto.  Cancellations 
and  returns  are  deducted.  This  is  compiled  through  an 
accumulative  method  of  accounting.  For  example: 


234   RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

May  1     Open  orders 25,000 

1     Orders  placed  5,000 


Open 30,000 

2    Received 11,000 

2    Cancellation 1,000 


Open 18,000 

3    Received  (deduct)    . . .  7,000 

Placed  (add)  3,000 

Cancelled  (deduct)  ,. .  1,000 


4    Open.  . 13,000 

The  same  method  is  followed  by  the  receiving  department 
on  a  departmental  recapitulation  sheet  of  all  open  orders. 

General  Office  Copy. —  This  copy  is  merely  recorded 
in  order  file  formation  for  comparison  of  cost  of  the  com- 
modity when  the  incompleted  order  has  not  been  sent  to  the 
general  office  by  the  receiving  department. 

The  buyer's  copy  of  the  order  is  usually  taken  care  of 
in  a  similar  form  by  the  buyers  themselves  or  by  their 
clerks,  when  a  department  is  large  enough  to  employ  cleri- 
cal help.  However,  it  is  not  essentially  necessary  for  the 
buyer  to  do  this  as  the  merchandising  office  keeps  all  buyers 
informed  daily  as  to  the  department's  condition. 

Reserve  Stocks. —  In  the  past,  merchants  were  wont 
to  carry  large  quantities  of  stocks  of  various  classifications 
of  merchandise.  These  stocks  were  usually  stored  in  ware- 
houses or  storerooms  and  termed  Reserve  Stocks.  They 
consisted  of  hosiery,  knitted  underwear,  sweaters,  blankets, 
furniture,  floor  coverings,  and  even  wearing  apparel.  It 
has  been  the  custom  of  merchants  to  follow  this  method,  and 
it  is  not  surprising  to  find  these  conditions  existing  in  our 
present  day  with  some  stores  in  almost  any  city.  It  is  a 


MERCHANDISING  235 

fallacy  in  modern  merchandising  that  is  unpardonable.  No- 
merchant  in  retailing  should  permit  reserves  of  any  com- 
modity. It  is  better  to  pay  more  at  a  future  date  than  to 
carry  stocks  in  reserve. 

Financially,  part  of  the  circulating  capital  is  prevented 
from  being  in  motion.  Thus  the  diminution  of  capital  and 
the  turnover  must  be  retarded.  From  a  merchandising 
viewpoint  reserve  stock  loses  its  freshness,  deteriorates 
from  lack  of  proper  care  or  on  account  of  lack  of  demand 
or  change  of  style.  Perhaps  the  reserve  may  be  due  to  look- 
ing into  the  future.  Such  thoughts  of  the  future  result  in 
speculations  or  gambling,  which  cannot  be  synonymous  with 
modern  merchandising.  There  may  occasionally  exist  an 
exceptional  incident,  but  this  practice  must  eventually  be 
detrimental  to  the  best  interests  of  an  organization.  To  be 
a  piker  in  merchandising  is  by  far  a  greater  credit  than  to 
overload  one's  self  with  an  unnecessary  burden.  "Whether 
the  store's  outlet  is  in  millions  of  dollars  or  hundreds  of 
dollars,  it  is  advisable  to  buy  from  hand  to  mouth,  so  to- 
speak,  in  accordance  to  a  department's  requirements. 

Best  Selling  Prices. —  Perfunctory  merchandising  is 
that  in  which  controls  are  set  up  in  monetized  segments.  It 
may  be  admitted  that  a  certain  degree  of  success  is  accom- 
plished by  this  but  the  superlative  degree  of  success  is  only 
possible  when,  in  conjunction  with  monetized  segments,  the 
prices  of  the  various  quantities  receive  the  same  considera- 
tion. A  knowledge  must  be  established  giving  the  quan- 
tities sold  by  prices.  This  knowledge  is  obtainable  daily- 
through  the  sales  checks  or  price  stub  tickets  of  each 
department,  setting  up  daily  the  quantity  sold  of  each  price 
of  merchandise  carried  in  stock.  The  purchasing  power 
will  then  be  centered  on  the  best  priced  merchandise  mov- 
ing in  the  department,  thus  enabling  the  department  to- 
create  a  better  turnover  and  a  larger  variety  of  stock  at  the 
best  selling  prices,  from  which  customers  may  make  their 
selections.  This  procedure  continued  yearly  is  a  most  per- 


236   RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

feet  guide  for  the  following  year's  purchases,  not  only  by 
prices  but  for  quantities  sold  during  each  weekly  period 
(see  Form  53). 

For  sales  promotion  ideas,  this  information  at  hand 
becomes  of  intrinsic  value.  Especially  is  this  knowledge 
paramount  for  better  control  as  the  department  grows  in 
sales.  In  the  form  here  given,  the  information  is  set  up 
on  a  basis  comparative  with  that  of  the  previous  year.  It 
may  so  happen  that  one  year  the  best  selling  prices  will  be 
centered  amongst  one  group  of  prices,  and  during  the  cur- 
rent year  at  another.  This  will  promptly  demonstrate  any 
change  of  policy  the  organization  may  have  established,  or 
whether  a  change  in  policy  in  regard  to  the  classification  of 
merchandise  the  community  is  forcing  upon  the  house  is 
advisable.  Perhaps  it  may  demonstrate  that  a  buyer  is  not 
keeping  within  the  policy  of  the  house.  In  any  event,  the 
management  is  apprized  of  conditions  promptly  during  the 
course  of  the  season,  rather  than  by  a  haphazard  guess  or 
an  analysis  of  conditions  to  elucidate  information  that  has 
been  eliminated  from  thought. 

Certain  classes  of  merchandise  are  best  for  a  guide  by 
having  the  information  monthly.  However,  merchandising 
is  always  at  its  best  on  a  weekly  basis.  In  addition  to 
weekly  reports  of  best  selling  prices  by  pieces,  a  daily 
report  as  a  result  of  the  daily  newspaper  advertisements  is 
set  up,  thus  giving  daily  sales  conditions  by  pieces,  prices 
and  best  selling  advertising  prices,  including  material  and 
color,  should  a  particular  color  or  stock  be  in  seasonable 
demand. 

How  to  set  up  the  statistics  of  sales  by  prices  is  formu- 
lated by  two  methods.  It  has  been  here  mentioned  that  the 
information  is  obtained  from  the  sales  checks.  This  method 
is  the  longer  method,  but  the  most  accurate  one.  A  depart- 
ment's merchandise  is  segregated  into  its  classification  of 
color,  style  or  make.  For  example,  furniture  should  be  as 
follows : 


MERCHANDISING 


237 


Day 

oold 

PRICES 

Quantity 
total 

Dollars 
total 

Brass  beds 

5 

10 

15 

18 

20 

25 

30 

35 

40 

M 

— 

— 

— 

— 

— 

— 

— 

— 

T 

W 

— 

— 

— 

— 

— 

— 

— 

— 

— 

T 

F 

S 

— 

- 

Weekly  total 

Women's  coats 

Col. 

5 

7.50 

10 

12 

15 

20 

25 

30 

35 

40 

Quan. 
total 

Dollar 
total 

M 

T 

W 

T 

F 

S 



Weekly  total 

At  the  end  of  the  weekly  period,  the  total  sales  at  each 
price  will  be  ascertained  by  addition  and  set  up  on  the 
recapitulation  sheet  as  shown  in  Form  53. 

Another  method  for  setting  up  a  sales  record  of  the  num- 
ber of  pieces  sold  at  prices  is  by  means  of  a  stub  attached  to 
the  price  ticket  hung  on  merchandise  marked  for  selling. 
These  stubs  will  bear  the  lot  number  or  style  number  by 


238  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

which  that  particular  class  of  merchandise  is  known,  which 
may  be  either  the  store's  own  style  number  or  the  manu- 
facturer's style  number.  The  color  and  selling  price  will 
also  appear. 

Promptly  following  the  making  of  a  sales  check,  cover- 
ing the  sale  of  a  particular  article,  the  stub  will  be  detached 
and  deposited  in  a  receptacle  for  the  purpose  of  retaining 
all  the  stubs.  This  receptacle  is  usually  placed  at  the 
wrapping  desk  or,  if  the  merchandise  is  of  such  character 
that  no  wrapping  desk  is  convenient,  the  receptacle  will  be 
placed  at  the  cashier's  desk  or  inspectress'  desk,  all  depend- 
ing upon  the  general  outlay  of  the  store 's  system  of  making 
change  and  parcel  wrapping.  These  stubs,  at  the  begin- 
ning of  business  the  following  morning,  will  be  removed 
from  the  receptacle,  assorted  by  prices,  color,  quality  or 
any  such  method  in  which  the  record  is  desired  to  show 
the  quantity  sold  by  prices.  The  assortment  having  been 
concluded,  an  entry  will  be  made  in  a  book  form  kept  in 
the  department.  A  report  will  be  sent  to  the  statistical 
department  of  the  general  office,  which  will,  in  turn,  set 
up  the  general  office  record  for  future  purposes  along  the 
line  of  sales  by  prices  conforming  with  the  set  up  as  shown 
in  Form  53. 


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239 


CHAPTER  X 

MERCHANDISING 

In  previous  chapters,  the  author  has  discussed  merchan- 
dising in  many  particulars,  especially  with  regard  to  the 
question  of  turnover,  which  is  the  basic  principle  of  mer- 
chandising and  the  source  of  obtaining  profits.  Successful 
merchandising  must  result  in  profits,  a  large  volume  of 
sales  and  perfect  cooperation;  all  of  which  are  governed 
by  predetermination  of  an  honest  objective.  A  dishonest 
objective  undermines  the  full  complement  of  merchandis- 
ing, and  failure  is  the  ultimate  culmination.  Failure  to 
accomplish  success  where  honesty  receives  its  full  comple- 
ment may  be  due  to  many  causes.  These  may  be  divided 
into  the  following: 

Ability. 

Character. 

Capital  as  to  man  power. 

Location. 

Store  layout. 

Cooperation. 

Service. 

Sales  promotion. 

Merchandise  control. 

In  the  discussion  of  the  classes  here  named  as  mentioned 
in  the  chapter  of  turnover,  the  subject  of  the  buying  of 
merchandise  must  be  eliminated  entirely.  There  are  no 
rules  governing  buying.  Wanted  merchandise  is  selling 
merchandise.  It  is  often  termed  desirable  stock.  An 
organization  overloaded  with  undesirable  stocks  that  must 
go  to  the  mark  down  when  the  season  has  been  good,  will 

240 


MERCHANDISING  241 

generally  find  that  its  buyer  has  used  poor  judgment. 
Though  the  buyer  is  indefatigable,  many  friends  and  good 
fellowship  often  make  the  store  bear  the  consequences.  Or 
the  buyer  may  be  indefatigable  but  he  may  not  know  the 
functions  of  the  buyer's  position. 

Ability. —  Considering  the  first  requisite  of  the  diverse 
requirements  for  successful  merchandising,  ability  plays  a 
most  potent  part.  Its  beginning  is  with  the  proprietor  of  an 
organization  and  its  administrative  executives.  Ability  for 
the  retailing  business  is  one  necessity,  but  this  is  only 
subordinated  to  education.  Ability  should  not  only  exist 
amongst  executives,  but  in  all  classes  of  help.  These  cover 
all  the  coworkers  of  the  organization  from  office  clerks  and 
sales  help  down  to  the  porters.  What  necessity  is  found 
for  education  ?  It  does  not  imply  that  the  sales  person  or 
porter  should  be  the  happy  possessor  of  a  university 
diploma,  but  simply  of  the  education  necessary  to  perform 
his  functions  to  perfection. 

Efficiency  may  be  one  of  its  interpretations,  but  efficiency 
has  been  strangled  so  often  that  its  use  to  convey  an 
explicit  meaning  has  come  to  be  as  broad  as  the  interpre- 
tations of  the  Delphic  oracle's  predictions  in  ambiguous 
terms,  so  that  the  coworker,  not  being  able  to  define  effi- 
ciency for  lack  of  knowledge,  does  not  comprehend  the 
term  nor  its  requirements. 

Educating  coworkers  of  an  organization  to  perform  their 
functions  perfectly  is  creating  ability.  The  better  the  abil- 
ity, the  greater  the  result.  Educating  along  the  lines  of 
coworkers'  functions  is  not  sufficient,  and  many  organiza- 
tions, which  stop  at  this  limitation,  retard  their  best  inter- 
ests. 

It  is  assumed  that  the  elementary  subjects  of  common 
school  education  have  been  taken  care  of  by  the  laws  of 
our  government.  Polishing  education  along  the  lines  of 
modern  economics  and  social  conditions  is  as  necessary  to 


242  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

the  organization's  proprietor  and  executives  as  it  is  to  their 
coworkers  in  order  to  enhance  the  value  of  ability.  This 
form  of  education  is  equal  to  the  knowledge  of  how  cloth 
is  produced  at  the  mills,  or  the  story  of  how  silk  is  made 
from  the  cocoon  to  the  dyers,  or  the  porter's  knowledge  of 
why  oxalic  acid  and  water  used  to  mop  up  floors  will  give 
it  lighter  or  whiter  appearance. 

How  to  accomplish  this  education  for  the  proprietor  and 
coworkers  is  simple  in  its  undertaking,  providing  it 
becomes  a  part  of  the  store's  organization.  Educational 
instructors  are  employed.  Periodical  lectures  on  various 
subjects  must  be  conducted.  Store  organs,  better  known 
as  store  news  or  magazines,  must  be  issued.  There  may  be 
a  store  library,  general  store  meetings,  department  meet- 
ings, with  the  department  manager  at  the  head  imparting 
knowledge  of  market  conditions  as  well  as  of  the  merchan- 
dising problems  open  for  discussion. 

It  is  surprising  how  much  one  knows  when  put  to  the 
test  in  an  open  discussion  in  which  coworkers  participate. 
As  an  educator,  such  methods  are  without  a  parallel.  It 
not  only  broadens  the  scope  of  knowledge  but  engenders 
better  mannerisms  as  well  as  improvement  in  speech.  Abil- 
ity is  knowledge  and,  since  knowledge  denotes  power,  lack 
of  such  power  as  ability  furnishes  will  defeat  any  project, 
whether  it  be  retailing  or  anything  known  to  civilization. 

Character. —  This  second  classification  is  equal  to  that 
of  ability.  Its  scope  is  of  stupendous  proportions  and  tre- 
mendous importance.  Character  of  the  personnel  is  of 
more  importance  than  that  of  any  other  form  of  business. 
Its  reflection  comes  from  the  owners  of  the  business.  Their 
exemplification  of  character  not  only  to  coworkers  but  to 
the  entire  society  must  be  unblemished.  Why  should  char- 
acter carry  on  such  tremendous  importance  in  its  relation 
to  merchandising?  Turnover  is  the  answer. 

It  is  doubtful  whether  any  father  or  husband  would  per- 


MERCHANDISING  243 

mit  his  dear  ones  to  enter  an  establishment  employing  per- 
sons that  wholesome  society  would  ostracize.  Just  picture 
a  woman  entering  an  establishment,  who  is  approached  by 
a  coworker  in  the  establishment,  whose  appearance  and 
expression  denote  refinement,  cleanliness  of  thought,  of 
action,  of  speech,  of  kindliness  and  personal  interest.  The 
woman,  a  prospective  customer,  is  thus  made  to  feel  safe 
in  her  surroundings.  Her  confidence  is  promptly  estab- 
lished. Her  thoughts  are  not  diverted  from  but  are  imme- 
diately concentrated  on  the  object  of  her  search.  In  fact, 
the  sale  is  half  won  or,  at  least,  a  permanent  patron  is 
added  to  the  store's  assets. 

On  the  other  hand,  have  the  same  woman  approached  by 
a  coworker  of  nonchalant  disposition,  who  thinks  more  of  a 
rendezvous  than  any  other  thought.  A  discussion  of  the  two 
results  to  the  best  interest  of  the  organization  needs  not 
be  undertaken.  It  suffices  to  say  that,  under  the  second 
circumstances,  good  will  is  depreciated  and  a  prospective 
sale  invariably  will  be  lost.  A  close  study  into  the  charac- 
ter that  represents  the  store  will  show  that  this  is  the  ful- 
crum of  success. 

Character  does  not  cover  personality  alone.  The  mer- 
chandise itself  is  changed  from  the  neuter  gender  to  that 
of  personality  in  its  relations  to  store-keeping  of  modern 
times.  Questionable  character  is  repulsive,  not  only  to 
wholesome  people,  but  eventually  to  others  of  questionable 
character.  Likewise,  does  shoddy  merchandise  sooner  or 
later  take  on  repulsiveness.  A  conscientious  coworker  who 
is  out  to  win  success  can  only  find  success  through  real  hard 
work.  He  is  one  who  will  give  two  dollars  of  labor  for  one 
dollar  received.  Unfortunately,  the  masses  cannot  under- 
stand this.  The  store  that  will  give  full  value  and  a 
little  extra  for  every  dollar  they  ask  for  their  stock  must  of 
necessity  create  trade,  receive  trade  and  hold  trade.  Abra- 
ham Lincoln  may  well  be  quoted  in  this  respect  when  he 


244  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

said  ' '  you  can  fool  all  of  the  people  some  of  the  time,  some 
of  the  people  all  of  the  time,  but  you  can't  fool  all  the 
people  all  of  the  time."  Then  there  is  the  paradox  of 
P.  T.  Barnum,  a  "  Sucker  born  every  minute." 

Capital  as  to  Man  Power. —  The  capital  of  the  retail 
establishment  may  be  divided  into  three  divisions: 

Circulating  capital. 
Fixed  capital. 
Man  power  capital. 

Of  fixed  capital  and  circulating  capital,  the  author  has 
previously  made  mention.  Since  the  durability  of  circu- 
lating capital  is  less  than  fixed  capital,  the  circulating  cap- 
ital will  be  diminished  unless  it  is  accumulated  by  profits. 
The  extent  of  any  business  venture  depends  upon  the  cash 
originally  employed.  Borrowed  capital  is  usually  in  the 
form  of  negotiable  instruments. 

Of  the  three  divisions,  man  power  capital  becomes  an 
important  factor.  Not  only  does  it  represent  a  cash  value 
as  to  labor,  but  it  also  has  the  power  of  producing  evolution 
to  circulating  capital,  which  puts  industry  into  motion. 
Man  power  capital  is  represented  by  knowledge  —  which  is 
power  —  without  which  power  cash  capital  or  its  exchange- 
able value  other  than  knowledge  of  labor  will  soon  diminish 
cash  and  make  the  business  venture  a  failure.  It  behooves  the 
merchant  to  equalize  his  cash  capital  in  proportion  to  man 
power  at  a  ratio  of  1  to  2.  That  is,  knowledge  in  any  par- 
ticular branch  of  retailing  must  be  twice  as  great  as  its 
exchangeable  value  in  cash.  The  earning  power  for  the 
organization  reflects  the  personal  earning  power  of  the 
coworker,  who  must  be  a  possessor  of  man  power  capital. 
Every  organization  should  possess  an  educational  curricu- 
lum with  the  objective  of  development  of  man  power 
capital. 


MERCHANDISING  245 

Location. —  In  its  relations  to  merchandising,  location 
becomes  a  prime  factor.  In  this  respect  it  may  be  sub- 
divided into  the  classes  of 

Inceptive  location. 
Popular  location. 
Medium  location. 
Exclusive  location. 

Inceptive  location  refers  to  the  premises  and  locality  in 
the  city  or  town  where  a  store  is  contemplated.  Where  the 
community  is  not  rated  as  a  first  class  city,  the  drawing 
element  must  receive  careful  attention.  This  requires  the 
geographical  consideration  of  neighboring  towns,  villages, 
hamlets  and  farming  surroundings.  There  are  cities  and 
even  towns  whose  suburbs  are  considerably  greater  than 
their  own  population.  Then,  again,  there  is  the  railroad 
center  from  which  a  transient  trade  may  be  derived.  The 
population,  the  industries,  the  earning  power  of  the  people, 
their  habits  and  customs,  amusement  centers,  climatic  con- 
ditions, productions,  banking  facilities,  transportation 
facilities,  and  adjacent  towns  have  their  share  of  analysis. 

These  elements  must  receive  careful  study  prior  to 
investing  capital,  not  forgetting  a  thought  to  competition. 
When  all  is  favorable  and  a  decision  is  arrived  upon,  the 
retail  business  section  is  to  be  determined.  Upon  this 
determination  rests  the  class  of  merchandise  to  be  carried 
on  for  trade.  Upon  concluding  the  selection  of  the  retail 
center,  the  question  of  the  right  side  of  the  street  is  next 
in  order. 

Observation  will  conclusively  prove  that  one  side  of  the 
street  is  a  greater  thoroughfare  than  the  other.  Where  the 
thoroughfare  is  greatest,  the  selection  for  the  store  site  must 
be  determined  upon.  There  are  a  number  of  cities  where 
both  sides  of  the  street  are  almost  equally  used  by  the  in- 
habitants. Yet  even  in  these  instances  one  side  will  always 


246  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

be  a  shade  the  better.  You  cannot  merchandise  unless  the 
people  are  there  to  merchandise  with ;  the  greater  the  num- 
ber of  the  people,  the  greater  the  merchandising. 

Popular  location  refers  to  the  masses  and  the  center  in 
which  the  poorer  classes  are  accustomed  to  do  their  shop- 
ping. Closely  following  this  location  is  generally  found 
the  medium  location,  which  caters  to  the  middle  classes. 
In  our  country,  as  shown  by  statistics,  90  per  cent  of  the 
entire  population  possess  less  than  one  thousand  dollars; 
8  per  cent  possess  from  one  thousand  to  five  thousand  dol- 
lars, and  2  per  cent  possess  over  five  thousand  dollars. 
From  these  statistics  a  clear  discrimination  may  be  drawn 
for  the  poorer  classes  or  popular  trade,  the  second  class  for 
medium  trade  and  the  exclusive  class,  which  is  known  as 
the  better,  or  exclusive  trade. 

A  distinction  is  also  made  between  the  exclusive  trade 
and  ultra-exclusive  or  society  trade.  The  exclusive  trade 
will  always  endeavor  to  isolate  itself  from  the  popular  and 
even  the  medium  trade.  To  exemplify  this,  New  York  a 
century  ago  had  its  shopping  center  at  Chatham  Square 
and  Catherine  Streets.  When  the  poorer  class  began  to 
inhabit  this  section  about  the  time  of  the  Civil  War,  the 
shopping  center  moved  to  Grand  Street  and  Bower  Lane, 
now  known  as  the  Bowery.  Shortly  after  the  war,  it  again 
moved  a  mile  further  north  near  Fifth  Avenue.  In  the 
last  fifteen  years,  a  further  move  was  made  to  34th  Street 
and  up  to  42d  Street.  The  fact  that  the  popular  trade 
and  medium  trade  localized  itself  in  certain  shopping  cen- 
ters, and  a  tendency  to  populate  other  sections  of  the  city, 
assisted  in  the  movement  of  the  retailing  section.  It  was 
further  assisted  by  the  new  railroad  centers  of  the  New 
York  Central  Railroad  and  the  Pennsylvania  Railroad. 

The  exclusive  trade  until  a  decade  ago  was  located  on 
Fifth  Avenue  from  31st  to  35th  streets.  To-day  the  influx 
of  other  classes  of  trade  has  forced  the  exclusive  trade  to 


MERCHANDISING  247 

move  further  north  to  where  it  is  now  located.  These  vari- 
ous movements  conclusively  demonstrate  that  location  and 
the  class  of  merchandise  to  be  carried  are  in  trade  closely 
allied.  A  retail  organization  will  sometimes  inadvertently 
pass  from  the  popular  to  the  better  grade  of  merchandise, 
generally  through  the  constant  changing  of  buyers,  and 
will  not  awake  to  the  change  until  the  sales  begin  to  dimin- 
ish and  the  turnover  slackens.  If  it  is  the  intention  of  the 
store  to  change  the  classification  of  its  merchandise,  the 
administrative  body  of  the  store  must  be  farsighted  enough 
to  prepare  a  change  of  store  location. 

Layout. —  The  store  layout  is  a  continuous  thought  in 
the  management  of  the  retail  establishment.  The  meaning  of 
the  term  layout  is  the  manner  in  which  shelving,  counters, 
tables  and  racks  and  aisles  are  arranged.  The  street 
entrance  to  the  store  must  immediately  attract  the  attention 
of  the  patron  and  create  an  impression  of  pleasant  sur- 
roundings that  will  make  the  patron  feel  like  seeing  more. 
The  atmosphere  should  be  filled  with  a  feeling  of  happiness, 
the  clerks  should  be  ready  with  a  delighted  smile  to  wait 
on  the  patron  with  the  feeling  of  not  only  good  will,  but  of 
pleasure  at  attending  to  the  patron's  wants.  The  appear- 
ance of  coworkers  has  a  tendency  to  enhance  the  value  of 
the  store  layout. 

The  aisles  should  at  all  times  be  as  wide  and  as  many  as 
the  width  of  the  store  will  permit.  Where  counters  are 
used,  which  generally  are  located  directly  in  front  of  walls, 
the  width  of  such  counters  must  receive  consideration  with 
regard  to  the  class  of  merchandise  used.  For  example,  a 
glove  counter  must  be  upholstered  and  one-third  the  width 
of  the  silk  or  domestic  counter,  or  of  such  counters  as  are 
used  to  display  linens,  muslins  and  dress  goods.  All  cases 
and  fixtures  of  every  description  must  be  appropriate  for 
excellent  display  of  the  merchandise  which  the  section 
houses. 


248  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

Beginning  with  the  basement,  it  is  customary  to  have 
such  departments  as  house  furnishings,  groceries,  meat 
market  and  dairy  ^products.  Many  stores  utilize  the  base 
ment  as  a  lower  price  store,  and  carry  here  a  complete 
department  store  stock.  This  does  not  permit  the  base- 
ment, or  downstairs  store,  to  take  on  the  appearance  of  an 
auction  house.  Its  enticing  layout  must  be  in  harmony 
with  the  store  in  general.  All  floors  should  be  so  arranged 
as  to  denote  individuality  in  accordance  with  the  stocks 
and  for  the  comfort  of  the  shopper. 

Cooperating. —  The  retail  establishments  and  depart, 
ment  stores  make  it  necessary  to  subdivide  cooperation  into 
three  divisions: 

Coworkers  cooperation. 
Departmental  cooperation. 
Department  head  cooperation. 

Economics  teaches  us  that  labor  is  the  ultimate  price 
that  is  paid  for  everything.  The  exchangeable  value  for 
labor  given  by  the  worker  of  a  store  is  cash ;  sometimes  cash 
and  commodity.  A  remuneration  having  been  paid  and 
being  paid  for  labor,  it  is  within  the  rights  of  the  organiza- 
tion to  expect  such  labor,  better  known  in  retailing  as  ser- 
vices (labor  being  better  applicable  to  manufacturing  pro- 
duction) to  be  as  the  organization  wishes  it.  Such  rights 
must  be  exercised  with  precautions,  always  having  in  mind 
that  capital  and  labor  must  work  harmoniously  together 
to  accomplish  the  objective.  The  coordination  of  all  co- 
workers  to  cooperate,  as  it  were,  in  a  single  unit  must  fol- 
low. Assimilation,  when  referring  to  the  animal  body,  is 
the  building  up  of  tissue.  This  is  done  through  organic 
substances,  from  proper  nourishment.  Cooperation  of  all 
classes  of  labor,  direct  or  indirect,  should  receive  such 
nourishment  in  the  form  of  education  on  the  subjects  of 
human  nature,  altruism,  clean  thought,  value  of  progress, 


MERCHANDISING  249 

the  rewards  of  honest  execution  of  work  and  happiness 
derived  from  work,  and  from  harmonious  contact  with  the 
fellow-worker. 

"We  are  taught  that  poisonous  substances  taken  into  the 
body  cause  dissimilation  or  the  tearing  down  of  the  body 
tissues.  There  is  no  distinction  in  the  application  of  for- 
eign thoughts  to  a  coworker's  mind.  When  destructive 
thoughts  or  thoughts  that  divert  the  mind  from  clean  activ- 
ity are  engendered,  there  can  be  no  cooperation. 

It  is  the  object  of  every  department  store  to  operate  each 
department  as  if  it  were  an  individual  store.  In  many 
instances  these  departments  take  on  specialization  in  the 
commodity  handled.  Those  stores  that  do  not  specialize 
their  departments,  can  do  but  a  limited  volume  of  business. 
Lest  it  be  overlooked,  modern  commercialism  is  in  the  form 
of  specialization,  and  the  greatest  factors  that  department 
stores  have  to  contend  with  in  competition  are  the  specialty 
shops. 

In  specializing  the  merchandise  carried  in  trade  in  a 
department,  it  becomes  a  necessity  to  carry  the  class  of 
merchandise  to  meet  the  demands  of  the  trade  catered  to. 
The  sales  person  should  not  be  placed  in  a  position  to  say 
"  very  sorry,  indeed,  Madam,  but  we  do  not  carry  it  in 
stock. ' '  Buyers  often  neglect  to  complete  their  stocks  'and 
its  entire  complement.  The  moment  the  neglect  becomes 
effective,  the  department  has  its  shortcomings  and  speciali- 
zation is  defeated.  It  is  regrettable  to  say  that  such  con- 
ditions exist  in  most  department  stores.  Even  in  the 
so-called  specialty  shop,  in  the  majority  of  cases,  they 
often  do  not  complete  their  specialization. 

In  the  cooperation  of  departments  it  will  be  often  found 
that  the  management  of  one  department  through  petty 
jealousy  of  another,  will  retard  the  advancement  of  the 
other  departments  and  thereby  engender  the  same  feeling 
for  their  own  department.  It  is  hardly  conceivable  that 


250  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

such  feeling  should  exist,  but  only  in  the  exceptional  store, 
where  education  of  mind  and  trade  is  a  part  of  the  store 
will  it  be  eliminated.  The  feeling  of  one  department 
against  another  will  arise  from  so  insignificant  an  action  as 
removing  a  table,  a  rack,  one  foot  of  floor  space,  a  window 
display  for  a  day.  A  store  tribunal,  consisting  of  its  co- 
workers,  will  be  found  a  most  excellent  method  of  over- 
coming and  combating  such  conditions.  One  department 
must  at  all  times  recommend  other  departments. 

Perhaps  the  greatest  evil  and  enemy  of  cooperation  in 
stores  is  caused  by  the  lack  of  harmony  amongst  executives. 
Every  executive  has  his  functions  to  perform.  They  must 
be  performed  without  fear,  with  farsightedness,  be  well 
balanced  logically  and  with  the  paramount  thought  of  the 
good  of  the  store.  The  ideal  executive  of  the  retail  store  is 
one  with  a  happy  trend  of  mind,  cheerful  on  all  occasions, 
a  student  of  human  nature,  well  educated  through  school- 
ing and  worldly  knowledge,  having  complete  control  of  his 
temperament  and  long  training  in  merchandising.  All 
executives  do  not  possess  these  qualifications  and  it  often 
happens  that  one  may  feel  petty  grievances,  generally  with- 
out real  cause.  Distracted  thoughts  follow  and  the  store 
bears  the  brunt  of  such  distraction.  Men  are  sometimes 
prone  to  tell  their  troubles  to  some  coworker.  The  co- 
worker  becomes  the  medium  of  circulation,  thereby  engen- 
dering destruction  of  cooperation  throughout  the  store. 
Executives  should  have  their  weekly  meetings,  in  which  all 
supposed  ill  feelings  are  to  be  aired,  cooperation  discussed 
and  the  furtherance  of  progress  promoted. 

Service. —  Undoubtedly,  the  greatest  factor  for  com- 
mercial success  in  retailing  in  modern  times,  and  greater 
still  for  the  future,  is  Service.  An  enterprise  without  ser- 
vice is  likened  to  suspended  animation,  or  an  inanimate 
state  awaiting  a  resuscitator  who  knows  how  to  conduct 
retailing  along  modern  principles  and  who  besides  being 


MERCHANDISING  251 

an  executive  of  ideas  (sound  ideas)  is  also  a  humanitarian. 
The  question  of  capital  and  labor  is  endless,  yet  we  must 
concede  that  capital  and  labor  must  work  harmoniously 
together  to  assume  success.  The  modern  department  store 
is  an  exemplification  of  capital  and  labor  in  two  forms : 

1.  Capital  and  coworkers. 

2.  Store  customers. 

Capital  and  coworkers  will  be  treated  as  the  store  or 
organization  in  its  relation  to  service.  It  is  common  for 
any  interested  party  in  retailing  to  pick  up  a  newspaper 
of  any  of  our  cities  and  read : 

"  The  People's  Store,"  or  "  Make  Blank  and  Company 
Your  Store."  Most  of  this  is  pure  and,  in  most  instances, 
unadulterated  "  bunk."  The  store  may  wish  to  have  its 
organization  patronized  by  the  entire  community.  The 
mere  fact  that  its  desire  becomes  known  through  publicity 
does  not  necessarily  prove  that  the  desire  is  accomplished. 
The  desire  must  be  applied  to  the  laws  of  "  cause  "  and 
"  effect." 

It  must  be  promulgated  from  the  administrators  to  the 
coworkers,  not  merely  by  word  of  mouth  or  by  a  placard 
in  the  coworker's  locker  room  that  the  store  wants  in- 
creased sales.  The  coworkers  must  be  trained  in  perfect 
salesmanship.  It  must  not  be  overlooked  that  the  co worker 
spends  the  greater  part  of  his  life  at  the  store.  Unless  that 
coworker's  mind  is  at  ease  by  sufficient  remuneration,  har- 
mony to  perfection  with  the  fellow-coworkers  —  to  assure 
happiness  in  being  at  the  store  —  congenial  surroundings 
and  interest  sufficient  to  wear  a  smile  that  is  broad  and 
benevolent,  any  desired  effect  must  be  defeated.  When  the 
training  of  the  coworker  is  an  accomplished  fact,  only  then 
can  proper  service  be  rendered  to  the  community. 

The  embryonic  stage  of  service  is  with  the  coworker. 
His  schooling  must  be  in  accord  with  the  house  policy 
before  he  can  be  expected  to  render  service  to  patrons. 


252   RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

Optimism  is  a  most  wonderful  doctrine,  but  to  think  that 
the  customer  is  receiving  service  without  training  the  help 
to  render  the  right  kind  of  services  is  a  delusion. 

Having  educated  the  coworker,  the  question  arises  as  to 
what  service  is  to  be  rendered  a  patron  to  make  this  patron 
a  permanent  customer,  an  asset  to  the  organization,  so  that 
the  mere  mention  of  the  organization's  name  immediately 
brings  thoughts  that  are  synonymous  with  pleasure  in  shop- 
ping. Service  may  be  segregated  as  follows: 

Courtesy. 

Accommodation. 

Value. 

Courtesy. —  Many  are  taught  courtesy  from  child- 
hood ;  others  cultivate  their  disposition  to  be  courteous,  and 
still  others  find  they  are  forced  to  be  courteous.  The  latter 
character  is  the  unwanted  class  in  every  walk  of  life.  David 
Bates,  in  his  poem  "  Speak  Gently,"  says: 

' '  Speak  Gently !     It  is  better  far 

To  rule  by  love  than  fear. 
Speak  Gently !     Let  not  harsh  words  mar 
The  good  we  might  do  here." 

Accommodation. —  It  is  one  of  the  most  beautiful  reflec- 
tions that  the  teachings  of  brotherly  love  are  part  of  our 
existence  upon  this  planet.  Altruism  must  certainly  bring 
happiness  to  the  altruist.  This  should  be  part  and  parcel 
of  an  organization's  policy.  The  author  agrees  that  no 
business  organization  is  a  charitable  institution,  and  that 
business  is  founded  for  profit.  But  profits  are  accumu- 
lated by  turnover  of  stocks,  and  every  possible  element  that 
may  lend  assistance  in  turning  stocks  must  be  brought  into 
play.  Accommodation  is  a  great  factor  that  must  be 
reckoned  with,  especially  in  retailing.  In  other  businesses, 
accommodations  take  on  a  different  aspect,  though  the  one 


MERCHANDISING  253 

who  receives  the  accommodation  usually  pays  for  it  in  the 
form  of  value  received.  The  retailer  may  receive  it  in  a 
part  of  his  mark  up  or  directly  charge  it  as  part  of  his 
store  burden.  In  what  form  may  the  department  store 
accommodate  its  patrons?  The  ways  are  many  and  they 
usually  are: 

Charge  accounts. 

Parcel  wrap  accommodation  desk. 

House  shoppers. 

Obliging  assistance. 

Shopping  guides. 

Baby  nursery. 

Store  hospital. 

Professional  nurses. 

Children's  playground. 

Rest  rooms. 

Roof  gardens  for  resting  and  shopping. 

Sun  parlors. 

Musical  entertainment. 

Reading  and  writing  room. 

Stationery  for  patrons'  use. 

Post  office.      ' 

Theatrical  attraction,  ticket  offices. 

Fashion  Bureau. 

Complaint  Adjustment  Bureau. 

Store  Information  Bureau. 

City  and  General  Information  Bureau. 

In  fact,  any  good,  sound  idea  that  will  make  the  customer 
feel  at  home  and  satisfy  his  or  her  wants,  should  become 
a  part  of  the  accommodation  service  rendered,  and  a  con- 
venience for  shopping. 

Value. —  Quoting  David  Ricardo,1  "if  it  (a  com- 
modity) could  in  no  way  contribute  to  our  gratification,  it 

1  Political  Economy,  Chapter  1,  on  Value. 


254  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

would  be  destitute  of  exchangeable  value  however  scarce  it 
might  be,  or  whatever  quantity  of  labor  might  be  necessary 
to  procure  it." 

He  further  says,  "  In  speaking  of  commodities,  of  their 
exchangeable  value,  and  of  the  laws  which  regulate  their 
relative  prices,  we  mean  always  such  commodities  only  as 
can  be  increased  in  quantity  by  the  exertion  of  human 
industry,  and  on  the  production  of  which  competition  oper- 
ates without  restraint. ' ' 

The  subject  of  variations  of  value  and  the  influence  of 
demand  are  divided  into : 

1.  An  increase  of  value,  from  a  diminution  of  quantity. 

2.  A  diminution  of  value  from  an  augmentation  of  quan- 

tity. 

3.  A  possible  augmentation  in  its  value  from  the  circum- 

stances of  an  increased  demand. 

4.  Value  might  be  diminished  by  a  failure  of  demand. 

Ricardo,  though  he  lived  early  in  the  nineteenth  century, 
has  so  well  defined  value  and  the  principles  of  demand,  that 
no  exception  or  comment  is  necessary. 

A  parallel,  however,  may  be  drawn  to  the  misinterpreta- 
tion of  value  as  commonly  applied  in  modern  retailing.  A 
retail  merchant  who  will  mark  commodities,  regardless  of 
the  demand  in  the  community,  at  a  close  margin  of  profit, 
will  claim  that  the  commodity  is  of  wonderful  value. 
Again,  the  buyer  will  go  to  the  market  and  pick  up  (using 
here  the  customary  trade  expression)  a  lot  of  merchandise, 
call  it  a  ' '  job  ' '  if  you  like,  at  a  price  at  cost  or  below  cost 
of  production.  The  arrival  of  the  merchandise  at  the  store 
will  be  marked  at  a  very  close  or  reasonable  mark  up,  some- 
times a  greater  mark  up.  In  placing  the  merchandise  on 
sale,  value  will  receive  considerable  expression.  That  is, 
the  merchant's  opinion,  perhaps  his  honest  opinion,  is  that 
wonderful  values  are  being  given  for  the  price  and  he 
accentuates  his  opinion  by  bold  advertising. 


MERCHANDISING  255 

Consideration  must  be  given  to  the  consumer's  opinion 
of  value,  which  is  more  important  than  that  of  the  mer- 
chant. The  consumer,  believing  that  her  purchase  was 
worth  every  cent  paid,  and  even  agreeing  with  the  mer- 
chant that  the  value  was  exceptional  or  even  extraordinary, 
will  forget  the  consideration  given  for  the  commodity  pur- 
chased and  solely  judge  the  purchase  by  its  use,  its  wear, 
its  durability,  the  benefits  of  pleasure  gained  by  its  pur- 
chase. These  results  are  the  measure  of  value  on  commodi- 
ties placed  by  the  ultimate  consumer,  by  which  a  store's  ser- 
vice may  be  either  enhanced  or  destroyed. 

Destructive  service  is  first  begun  by  inflated  values  or 
misrepresentation.  As  an  example,  here  is  an  advertise- 
ment generally  appearing  in  newspapers  in  which  depart- 
ment stores  advertise : 

"  Extraordinary  is  the  only  word  which  seems  ade- 
quate in  describing  the  splendid  values  offered  in  this 
sale.  i 

"  Hosiery  sale.  Savings  are  quoted  as  a  fourth  to 
half,  but  that  means  savings  of  25%  to  50%  on  our 
regular  low  prices,  etc. 

"  $1.75  to  $2.50  silk  stockings,  $1.39  pr." 
The  question  of  value  here  must  receive  particular  atten- 
tion. No  merchant  could  honestly  sell  a  $2.50  stocking 
for  $1.39  without  impairing  his  trade.  "Why  is  the  $2.50 
stocking  being  sold  for  $1.39?  The  consumer  does  not 
know  it,  but  the  merchant  knows  that  the  lead  contained 
in  the  silk  will  reduce  the  stock  to  an  unsaleable  state 
unless  that  stock  is  made  to  move  quickly.  Perhaps  the 
stock  has  already  been  kept  too  long  and,  after  the  cus- 
tomer has  fallen  for  the  bargain  and  has  worn  the  stocking 
once  or  twice,  they  are  torn  or  holes  fall  into  them.  The 
question  arises,  how  many  of  such  customers  will  again 
visit  this  particular  hosiery  department  for  their  wants. 
The  answer  is  obvious  —  it  will  only  be  those  who  have 


256  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

fortunately  picked  up  an  exceptional  good  pair  of  stock- 
ings. In  this  particular  advertisement,  the  store's  fallacy 
has  been  the  lack  of  explaining  this  tremendous  reduction. 

The  creating  of  furniture  sales,  white  goods  sales,  house 
furnishings  sales,  drug  sales,  and  any  number  of  others, 
must  not  be  a  trumped  affair,  nor  a  job  lot  manufacturer's 
outlet,  but  an  honest,  truthful  and  reflective  statement  of 
the  whys  and  wherefores  of  the  sale,  always  having  in  mind 
not  the  merchant's  opinion  but  that  of  the  patron.  The 
merchant's  opinion  won't  count  for  much  unless  his  words 
are  substantiated  by  the  products  he  deals  in,  regardless  of 
the  class  of  people  catered  to. 

Sales  Promotion. —  In  part,  this  subject  has  been  dis- 
cussed in  the  chapter  on  turnover.  There  are  two  distinc- 
tions in  merchandising.  The  one  being  buying,  the  other 
selling.  Of  the  two,  the  latter  is  the  greatest  problem. 
Where  the  enterprise  is  of  small  proportions,  it  is  custom- 
ary for  the  merchandise  man  to  care  for  the  merchandis- 
ing, both  buying  and  selling.  In  larger  organizations,  a 
salesmanager  is  a  necessity. 

A  sales  promoter  is  not  one  who  knows  too  much  or  knows 
all  about  sales,  but  is  rather  the  possessor  of  extraordinary 
brain  power,  a  quick  thinker,  in  touch  with  all  the  economic 
conditions  of  the  country  as  well  as  of  the  community  in 
which  the  store  is  located,  and  a  master  in  salesmanship. 

Ketail  sales  promotion  is  at  variance  with  the  sales  pro- 
motion of  the  manufacturer.  The  one  is  the  distributor  to 
the  ultimate  consumer,  whereas  the  other  sells  to  the  retail 
distributor.  And  in  most  instances  for  a  considerable  length 
of  time  prior  to  the  use  the  consumer  may  utilize  the  com- 
modity. The  question  of  supply  and  demand  is  the  prob- 
lem for  the  retailers  to  solve.  It  is  of  the  utmost  import- 
ance for  the  sales  promoter,  at  the  beginning,  to  possess  a 
keen  understanding  of  the  economic  conditions  of  country, 
state  and  community.  In  the  analysis  of  supply  and  de- 


MERCHANDISING  257 

mand,  a  thorough  understanding  of  labor  conditions  must 
be  considered,  for  cost  of  production  regulates  the 
exchangeable  value  of  commodities.  This  has  been  demon- 
strated persistently  during  the  European  "War.  The  in- 
crease of  labor  from  land  products  in  commodities  of  almost 
every  description  increased  the  exchangeable  value,  better 
known  as  the  market  value. 

Sales  promotion  requires  good,  sound  ideas.  A  factor 
that  is  a  modifier  of  sales  promotion  is  competition.  Care- 
ful consideration  should  be  given  to  the  population  of  the 
community  and  its  surrounding  counties  from  which  trade 
is  expected.  From  the  known  population,  the  greatest  vol- 
ume is  set  as  the  goal  —  the  highest  peak  possible  to  be 
reached  in  annual  sales.  This  having  been  done,  a  thought 
as  to  transient  trade  is  not  to  be  overlooked.  The  wealth  of 
the  community  and  how  it  is  distributed  to  the  class  of 
trade  to  whom  the  store  caters,  is  of  utmost  importance. 
Usually  this  is  controlled  by  the  industries  of  the  com- 
munity that  support  labor.  "Where  labor  is  in  big  demand, 
it  is  reasonably  certain  that  a  large  retail  exchange  of  com- 
modity for  gold  must  follow.  "Where  the  community  does 
not  require  an  abundance  of  labor,  the  retailing  exchange 
of  gold  for  commodity  must  of  necessity  be  limited.  If  the 
division  of  wealth  be  divided  into  two  classes,  that  of  the 
extremely  wealthy  class  and  that  of  the  lower  class,  and  the 
population  is  small,  it  must  follow  that  the  wealthy  class 
will  seek  their  requirements  from  exclusive  establishments 
situated  in  the  larger  communities,  and  the  possible  ex- 
change of  gold  for  commodity  from  the  poorer  class  is  lim- 
ited to  that  paid  for  necessary  essentials. 

The  present  and  future  of  the  store  must  at  all  times  be 
paramount  in  promotion  of  sales.  In  looking  into  the 
future,  the  coming  generation  must  be  educated  from  child- 
hood to  look  upon  the  store  as  a  place  for  good  things,  and 
to  be  proud  of  the  fact  that  it  is  an  organization  where 


258  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

merchandise  obtained  always  gives  pleasure  and  value 
received.  To  this  end,  a  store  should  protect  its  future 
business  and  instill  the  desire  of  shopping  in  the  coming 
generation.  Bi-weekly  or  monthly  prizes  should  be  offered 
for  compositions,  essays,  suggestions  or  any  feature  what- 
ever that  brings  the  store  to  young  minds.  For  right  here 
is  where  the  family  begins  to  discuss  the  store  at  the  dinner 
table  or  even  in  social  circles.  When  such  discussions  of  a 
store  become  a  household  topic,  there  can  be  no  greater 
advertising  to  bring  the  right  kind  of  results. 

A  store  committee,  consisting  of  the  more  important  ex- 
ecutives and  buyers,  should  be  appointed  to  meet  once  a 
week  for  two  hours,  to  discuss  ways  and  means  to  promote 
sales.  This  committee  will  gradually  take  every  detail  of 
the  store  and  its  community  into  its  discussions.  It  is  sur- 
prising to  know  the  wonderful  results  that  follow.  The 
entire  uplifting  of  the  store  is  the  result,  and  occasionally 
outsiders'  opinions  and  travels  will  polish  thoughts  gen- 
erated from  these  committee  meetings. 

A  cardinal  essential  to  sales  promotion  is  a  good  idea. 
Ideas  make  a  business.  True  to  this,  it  becomes  incumbent 
upon  the  sales  promoter  to  study  new  ideas  continually, 
especially  original  ideas,  well  analyzed  before  they  are  put 
into  motion.  Sensational  ideas  create  curiosity  and  stimu- 
late desire,  but  their  purpose  is  defeated  when  they  are  too 
often  repeated.  They  not  only  must  produce  a  desired 
result,  but  must  be  the  means  of  creating  in  the  minds  of 
the  community  of  patrons  thoughts  that  are  homogeneous  of 
the  commodity  offered  for  an  exchangeable  value,  either 
for  the  demand  of  the  present  or  for  the  future.  Ideas 
must  be  acceptable  to  the  community  to  produce  the  de- 
sired effect  in  the  store  organization.  To  experiment  upon 
ideas,  the  acceptability  of  which  is  dubious  to  the  com- 
munity, is  costly.  Bather  than  increasing  the  turnover 
of  a  commodity,  this  increases  the  store  burden,  and  the 
means  of  diminution  of  capital. 


MEKCHAXDISIXG  259 

Sales  Promotion  as  to  Store  Analysis. —  The  analysis 
of  sales  promotion  must  receive  its  full  complement  of  the 
elements  mentioned  along  with  statistics  established  by  the 
store.  The  analysis  should  be  made  by  departments  and 
treated  individually  and  not  as  a  whole.  It  is  not  suffi- 
cient to  set  up  a  store's  own  statistics  of  its  departments. 
Those  of  its  competitors  become  equally  important.  Per- 
haps no  organization  for  commercial  trade  is  so  qualified  to 
ascertain  its  competitor's  statistical  information  as  that  of 
the  department  store  or  specialty  shop.  The  elements  to 
receive  particular  attention  are  those  of  the  number  of 
people  visiting  departments,  from  12  o'clock  noon  until  4 
P.  M.,  not  only  of  its  own  store  but  of  its  competitors. 

In  heavy  departments  such  as  coats,  suits,  dresses,  fur- 
niture, etc.,  the  number  of  pieces  carried  in  stock,  com- 
pared with  that  of  competitors,  should  be  known  daily. 
To  obtain  this  is  not  difficult  under  present  day  shopping 
customs.  The  difficulty  can  only  arise  where  exclusive 
styles  are  carried  in  stock.  In  such  cases,  trade  sales  promo- 
tion takes  on  an  entirely  different  aspect.  The  quantity  of 
stock  carried  on  for  trade  generally  reflects  the  demand  for 
a  department's  merchandise.  To  know  a  competitor's  stock 
quantity,  at  least  weekly,  is  of  intrinsic  value.  The  prices 
of  the  merchandise  carried  on  in  stock  are,  to  a  certain 
degree,  known  to  competing  stores,  through  advertising  and 
store  shoppers.  But  this  is  not  usually  efficiently  pur- 
sued. The  information  the  shopper  should  obtain  njust  be 
as  complete  as  possible,  and  must  be  ascertained  with 
cleverness.  A  further  assistance  in  setting  up  statistics  for 
comparative  purposes  and  for  knowing  the  extent  of  com- 
petition to  augment  other  knowledge,  is  the  number  of  co- 
workers  employed  in  the  different  departments.  A  buyer 
or  merchandise  manager  can  very  readily  approximate  the 
extent  of  a  department's  sales  by  the  number  of  sales  help 
in  a  department  and  the  prices  of  the  various  stocks, 


260   RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

especially  if  the  additional  information  previously  men- 
tioned is  at  hand. 

Sales  Promotion  as  to  Store  Analysis. —  A  further  aug- 
mentation to  competitor's  statistics  is  the  space  daily  occu- 
pied by  departments  in  the  various  daily  newspapers.  Per- 
haps the  reader  may  contend  that  the  foregoing  subject  of 
Bales  promotion  is  included  within  the  meaning  of  a  secret 
agent  procedure.  If  so,  the  author  desires  to  have  such 
thoughts  perish.  It  is  again  necessary  to  repeat  that' 
knowledge  is  power,  that  competition  is  most  welcome  in 
any  community,  but  that  to  meet  competition  and  promote 
expansion,  a  more  comprehensive  method  of  paving  the 
way  in  obtaining  the  objective  that  knowledge  of  every 
source  could  not  be  found.  In  this  the  knowledge  obtained 
must  receive  the  full  complement  of  merchandising. 

In  every  undertaking  of  sales  promotion,  the  public  must 
be  considered  in  every  move  that  covers  not  alone  the  store 's 
established  patronage,  but  the  entire  community.  The 
public  buys  what  it  pleases,  and  the  store  must  adapt  itself 
to  the  class  its  policy  caters  to. 

The  analysis  of  the  store 's  own  shortcomings  in  sales  pro- 
motion requires  constructiveness  from  the  individual  sales 
clerks.  To  exemplify  this,  there  was  a  store  whose  shirt 
waist  department's  annual  sales  were  about  $400,000,  that* 
did  not  come  up  to  the  allotted  quota.  That  is,  the  depart- 
ment was  expected  to  do  $500,000,  and  it  ran  short 
$100,000.  A  complete  analysis  was  made  for  the  year  in 
the  following  manner: 

Each  coworker  's  sales  were  enumerated  by  sales  checks  — 
that  is,  the  number  of  sales  effected  weekly  and  the  value 
they  represented  in  dollars.  A  monthly  analysis  in  addi- 
tion was  made  on  the  following  outline : 


MERCHANDISING 


261 


Co- 
worker 

No.  of  sales 
effected 

Value  in 
dollars 

Prices  of  Waists  Sold 

2.00 

2.50 

3.00 

3.50 

4.00 

5.00 

etc. 

The  results  of  analysis  demonstrated  that  certain  co- 
workers  whose  amounts  ran  high  in  dollars,  sold  the  higher 
priced  waists,  while  others  sold  in  greater  quantity  but  in 
lesser  amounts  in  dollars.  This  clearly  demonstrated  that 
certain  clerks  seemed  nonchalant  to  the  trade  requiring  the 
cheaper  grade  of  waists,  and  others  were  unable  to  meet 
the  ability  to  effect  sales  in  the  better  grade. 

Education  along  the  lines  necessary  to  overcome  the  in- 
difference of  the  one  and  to  increase  the  ability  of  the  other 
became  a  factor,  and  the  necessary  procedure  to  put  the 
education  in  effect  followed. 


CHAPTER  XI 

PROFIT  AND  LOSS 

Profit  and  Loss  Defined. —  The  income  of  an  organiza- 
tion may  be  segregated  into  three  divisions : 

The  first  is  the  income  derived  from  the  product  in  which 
the  organization  carries  on  trade. 

The  second  income,  that  derived  through  financial 
transactions. 

The  third,  that  derived  through  extraordinary  pro- 
cedures. 

Defining  the  first,  income  from  commodities  carried  on  in 
trade  would  be  the  proceeds  realized  from  the  sale  of  such 
;stocks  through  departments,  selling  agents,  or  individuals. 

Financial  income  would  be  defined  as  profits  accruing 
through  the  financial  transactions  of  the  organizations. 

Extraordinary  income,  where  incomes  are  determined 
from  transactions  entirely  foreign  to  those  in  which  the 
organization  has  an  objective  of  obtaining  profits  through 
trade. 

This  income  through  the  sale  of  stocks  carried  on  in  trade 
of  the  department,  is  divided  into  three  circumstances. 
These  are  from: 

Cash  transactions. 
Charge  transactions. 
C.  0.  D.  transactions. 

Charge  transactions  mean  transactions  where  charge 
.accounts,  better  known  as  accounts  receivable  accounts,  are 
carried  on. 

Cash  Sales. —  It  is  necessary  to  segregate  the  various 
.sales  of  the  department  store  or  any  retail  establishment  in 

262 


PROFIT  AND  LOSS  263 

order  that  the  audits  may  be  controlled  properly  and  in 
order  that  the  available  cash  may  be  known  at  any  future 
date  in  order  to  meet  obligations,  especially  where  the 
organization  has  reached  such  proportions  that  a  budget 
system  is  necessary  in  order  to  meet  every  requirement. 
In  conjunction  with  this,  a  classification  of  the  store's  trade 
with  the  setting  up  of  statistics  necessary  for  the  better 
management,  is  available.  Every  department  store  man  is 
very  much  interested  in  knowing  the  cash  receipts  for  the 
day,  week,  month  or  year,  and  the  percentage  of  cash, 
C.  0.  D.  or  charges  represented  in  the  day's  sales. 

It  is  customary  in  beginning  the  Profit  and  Loss  state- 
ment to  record  at  its  beginning  the  sales,  or  the  income 
from  which  the  burden  will  be  deducted.  This  is  not 
altered  in  the  department  store  statement  with  the  excep- 
tion that  the  sales  are  detailed. 

The  first  item  appearing  on  the  Profit  and  Loss  state- 
ment is  cash  sales.  This  represents  the  gross  receipts  in 
cash  from  merchandise  sold,  whether  it  be  a  cash  transac- 
tion or  cash  which  represents  a  part  payment. 

Charge  Sales. —  The  next  item  in  order  is  charge  sales. 
The  amount  representing  the  sales  for  charge  accounts  will 
be  the  gross  amount  of  the  actual  charge  sales  effected 
throughout  the  entire  establishment.  These  refer  to 
Accounts  Receivable.  They  will  represent  actual  sales 
which  have  been  passed  upon  by  the  credit  department  and 
controlled  through  the  credit  office  in  so  far  as  credit  limits 
and  collections  are  concerned. 

0.  0.  D.  Sales. —  All  sales  for  C  0.  D.  transactions, 
whether  the  source  is  from  a  part  payment,  a  will  call  or 
a  C.  0.  D.  transfer  check — regardless  of  what  the  source 
has  been,  the  fact  that  the  merchandise  was  not  paid  for 
until  delivery  at  a  later  date  than  the  one  when  the  sale 
actually  occurred  —  makes  it  necessary  that  the  transaction 
go  under  the  caption  of  C.  0.  D.  sales.  These  C.  0.  D.  sales 


264   RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

are  the  third  of  the  source  income,  or  circumstances  of 
effected  sales. 

Total  Gross  Sales. —  Perhaps  it  may  not  be  necessary 
to  enter  into  discussion  of  the  various  methods  in  which  a 
profit  and  loss  statement  is  set  up.  However,  there  are  ele- 
ments entering  into  setting  up  a  profit  and  loss  statement 
of  a  department  store  that  are  unlike  those  of  other  than 
retail  businesses.  After  having  segregated  the  divisions 
of  the  gross  sales,  the  ascertaining  total  is  next  in  order. 
The  percentage  should  be  set  alongside  of  each  division; 
the  total  of  which  will  equal  100  per  cent.  To  be  exact, 
100  per  cent  would  be  an  impossibility.  It  will,  however, 
represent  .9999,  etc.  The  total  gross  sales  divided  into 
each  division  of  sale  will  give  as  a  quotient  the  percentage 
of  the  total  gross  sales. 

Sales  Returns. —  Many  organizations  will  set  up  a 
profit  and  loss  statement  showing  the  sales  as  a  net  amount. 
The  department  stores  vary  so  extensively  in  this  regard 
that  the  amount  of  merchandise  returned  of  any  of  the 
three  divisions  is  as  important  as  setting  up  the  sales 
themselves.  Statistics  show  that  there  is  quite  a  variation 
in  the  difference  of  returns,  depending  upon  the  classifica- 
tion of  sales.  This  will  be  shown  in  the  following  chrono- 
logical order  of  returns. 

Cash  Returns. —  Cash  returns  mean  returns  of  mer- 
chandise for  which  cash  credits  have  been  issued  or 
cash  refunds  have  been  made,  because  of  the  customer's 
dissatisfaction  with  the  merchandise.  Dissatisfaction  may 
not  always  be  the  case,  but  from  the  department  store 
point  of  view,  it  is  seldom  the  real  reason.  The  feminine 
sudden  inspiration  may  determine  upon  the  purchase  of  an 
article  and  the  determination  subsides  when  that  person 
reaches  her  domicile.  Fortunately,  the  change  of  mind  is 
here  less  than  in  any  other  transaction.  The  statistical 
percentage  of  the  cash  returns  on  all  transactions  average 
6  per  cent  for  the  year. 


PROFIT  AND  LOSS  265 

It  is  a  known  fact  in  retailing  that  cash  transactions  are 
very  small,  though  6  per  cent  on  a  large  volume  of  business 
amounts  to  a  considerable  sum..  Still,  when  a  comparison 
is  made  with  the  returns  of  other  classifications  of  sales,  it 
is,  comparatively  speaking,  a  small  item.  The  knowledge 
of  the  percentage  of  returns  under  dollars  and  cents  is 
also  necessary  in  order  that  the  extra  cost  to  the  delivery 
department  may  be  determined.  This  makes  it  necessary, 
in  setting  up  the  Profit  and  Loss  statement,  to  segregate 
the  classification  of  sales  as  well  as  the  classification  of 
returns.  The  percentage  is  obtained  by  dividing  the  total 
of  designated  divisional  sales  into  the  divisional  return, 
giving  as  a  quotient  the  percentage.  The  total  returns  are 
divided  by  the  gross  sales  to  obtain  the  total  percentage  of 
returns. 

Charge  Credits. —  Following  cash  credits,  the  next  in 
order  are  the  charge  credits,  which  comprise  credits  for 
merchandise  returned,  from  charge  accounts  or  from  allow- 
ances for  claims.  This  form  of  credit  is  very  costly  for 
the  reason  that  the  charge  account  will  have  certain  mer- 
chandise sent  to  the  home  and,  after  permitting  it  to 
remain  several  days  and  sometimes  several  weeks,  a  claim 
will  be  made  or  the  merchandise  returned.  During  the 
years  1916-1917-1918,  strong  efforts  have  been  made  by 
department  stores  throughput  the  country  to  eliminate  the 
return  evil,  with  the  result  that  many  stores  have  adopted 
certain  regulations  regarding  the  acceptance  of  returns,  to 
the  extent  that  any  merchandise  purchased  on  a  charge  or 
otherwise,  unless  claim  is  made  or  returned  within  three, 
five  or  seven  days,  is  not  acceptable.  Also  apparel  other 
than  apparel  known  as  outside  apparel  is  not  accepted  as 
a  return  under  any  conditions.  The  general  excuse  given 
by  stores  for  the  non-acceptance  of  merchandise  is  the  sani- 
tary conditions  that  prevent  the  store  from  making  the 
credit  or  the  exchange;  and  there  are  even  laws  in  various 


266  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

cities  that  prevent  a  store  from  making  exchanges  of  such 
apparel,  whether  for  men,  women  or  children. 

The  average  return  of  charge  accounts  varies  from  12 
per  cent  to  16  per  cent,  depending  upon  the  location  of  .the 
city,  the  percentage  being  figured  of  return  charges  on 
charge  sales. 

C.  0.  D.  Returns. —  Returns  of  merchandise,  regardless 
of  the  nature  of  the  business,  are  at  best  an  evil.  In  apply- 
ing the  term  "  evil,"  which  is  a  characteristic  application 
by  retail  men  for  returned  merchandise,  the  word  is  used 
to  apply  to  the  hard  usage  through  which  the  merchandise 
is  put  and  the  deterioration  in  value  of  stocks  after  they 
make  the  circuit  from  the  store  to  the  customer  and  back 
again. 

C.  0.  D.'s  are  segregated  into  two  kinds: 

One  is  a  part  paid  C.  O.  D.  which  refers  to  those 
C.  O.  D.'s  on  which  a  deposit  has  been  made  by  the  cus- 
tomer. 

The  second  is  a  straight  C.  0.  D.  on  whicli  no  deposit  has 
been  made. 

C.  0.  D.  sales  have  taken  on  the  same  aspect  as  charge 
sales  to  the  extent  that  the  retail  merchants  throughout  the 
country  are  making  every  effort  to  diminish  the  C.  0.  D. 
returns  by  requesting  a  deposit  on  any  merchandise  pur- 
chased under  terms  of  C.  0.  D.  Unless  a  deposit  to  equal 
the  proportion  of  the  amount  of  the  sale  is  made,  the 
stores  will  not  make  a  delivery. 

There  was  a  time  when  a  department  store  claimed  that 
delivery  expense  was  either  3c,  4c  or  5c  a  package. 
A  store  would  consider  itself  quite  fortunate,  under  pres- 
ent conditions,  if  the  cost  per  package  was  12c.  Still  the 
author  ventures  to  say  that  there  are  some  large  depart- 
ment stores  in  the  country  whose  cost  per  package  is  no 
less  than  25c,  and  others  as  high  as  35c,  and  perhaps 
more. 


PROFIT  AND  LOSS  267 

The  necessary  procedure  can  readily  be  understood  to 
which  a  store  finds  itself  put  to  take  in  order  to  prevent 
additional  expenses  from  merchandise  purchased  and  then 
returned  with  no  adequate  excuse  for  such  return.  A 
woman  will  enter  a  store  and,  after  putting  the  clerk  to  a 
considerable  amount  of  trouble  and  annoyance  in  showing 
the  merchandise,  the  prospective  customer  will  think  she 
is  taking  compassion  upon  the  clerk  by  telling  her  to  send 
the  merchandise  to  her  home  C.  0.  D.  "When  the  delivery 
man  drives  up  to  the  door  he  receives  an  invitation  to  take 
the  merchandise  back  with  a  D.  "W.  (don't  want)  along- 
side of  the  customer's  name  on  the  delivery  sheet.  This  is 
perhaps  one  of  the  reasons,  and  the  most  common  one,  why 
the  C.  0.  D.  sales  are  so  heavy.  The  change  of  mind  is 
more  pronounced  on  a  C.  0.  D.  sale  than  it  is  on  any  other 
classification  of  sales.  Statistics  show  that  the  average 
returns  of  C.  O.  D.'s  range  from  20  per  cent  to  35  per 
cent  of  the  sales. 

.  It  may  be  argued  that  one  of  the  reasons  of  the  continua- 
tion of  the  C.  0.  D.  sales  is  that  if  a  store  runs  a  $1,000,000 
C.  0.  D.  sales,  35  per  cent  of  which  we  will  say  is  the 
maximum  average  of  returns  for  the  year,  the  store  still 
would  have  a  net  C.  0.  D.  business  of  $650,000.  Whether 
or  not  the  profits  gained  from  the  $650,000  are  sufficient 
to  cover  the  expenses,  depreciation  and  time  of  the  sales 
clerk,  delivery  department  and  auditing  department  is  a 
subject  for  the  individual  store  to  determine  for  them- 
selves. However,  the  author  recommends  C.  0.  D.  sales 
on  account  of  their  psychological  effect  on  customers  and 
their  relations  to  good  will. 

Total  Returns. —  Summarizing  the  returns  of  the  vari- 
ous classifications,  the  total  is  deducted  from  the  total  of 
gross  sales  in  order  to  obtain  the  net  sales  for  the  entire 
establishment.  The  total  of  returns  is  based  upon  the  total 
of  the  gross  sales,  in  order  to  obtain  the  percentage  of 


268     RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

returns  without  any  discrimination.  The  average  returns 
are  based  on  10  per  cent,  though  they  may  be  as  low  as  8 
per  cent  and  as  high  as  12  per  cent  or  13  per  cent. 

A  mail  order  house  using  a  considerable  amount  of  the 
elements  of  accounting  the  same  as  those  of  the  department 
store,  shows  that  returns  will  average  about  12  per  cent. 
This  demonstrates  that  whether  the  merchandise  is  bought 
through  mail  or  in  person  there  is  a  certain  amount  of 
returns  to  contend  with.  Provision  for  such  returns  must 
be  set  up  in  every  undertaking  in  the  management  of  a 
store.  Unless  provision  is  made  for  the  care  of  the 
returns,  it  will  be  found  that  profits  will  be  absorbed 
through  this  channel  by  indirect  cost  or  blind  costs. 

Net  Sales. —  In  order  that  profits  may  be  determined 
the  net  sales  is  the  basis  of  calculations.  Having  discussed 
the  gross  sales  and  the  returns,  total  returns  being  deducted 
from  the  total  gross  sales,  the  net  sales  will  be  determined. 
In  the  retail  establishment,  where  returns  of  merchandise 
are  perhaps  larger  than  any  other  known  business,  good 
accounting  makes  it  necessary  that  all  details  regarding 
sales  should  be  shown  on  the  profit  and  loss  statement.  A 
ready  comparison  between  the  net  sales  and  the  gross  sales 
is  one  of  the  important  figures  which  the  management  or 
the  owner  of  a  department  store  will  look  forward  to  with 
such  anxiety,  for  the  balance  sheet  must  be  subordinate  to 
this  figure. 

By  mentioning  balance  sheet  as  a  subordination,  the 
retail  merchant  knows  just  how  he  stands  in  his  affairs. 
"Whether  he  is  worth  a  few  dollars  more  or  less  does  not 
enter  into  his  mind.  "What  he  wants  to  know  is  how  his 
business  is  going,  and  the  balance  sheet  does  not  show  this 
from  a  merchandising  point  of  view.  Accountants  may 
argue  that  the  balance  sheet  is  a  necessity  in  order  to  know 
the  conditions  of  one's  business. 

The  author,  on  his  own  knowledge,  must  admit  this,  and 


PROFIT  AND  LOSS  269 

cannot  refute  any  discussion  along  this  line.  But  the  mer- 
chant operating  a  department  store  or  retail  establishment 
is  interested  in  the  fluctuations  of  his  business  from  the 
merchandising  point  of  view.  It  is  safe  to  say  that  90  per 
cent  of  the  merchants  operating  a  retail  establishment  care 
very  little  regarding  the  balance  sheet,  and  in  fact  a  great 
percentage  of  such  merchants  do  not  even  know  what  an 
accountant  is  talking  about  when  he  refers  to  the  word 
balance  sheet.  If  the  term  financial  statement  is  mentioned 
it  is  understood,  but  the  operating  methods  of  the  retail 
establishment  superseded  by  merchandising  are  what  fill  99 
per  cent  of  the  retailer's  time. 

Having  arrived  at  the  net  sales  for  the  period,  the  next 
procedure  is  to  ascertain  exactly  what  the  net  sales  cost. 

Cost  of  Sales. —  In  order  to  ascertain  the  cost  of  sales 
for  a  trading  statement  or  a  Profit  and  Loss  statement, 
there  are  three  elements  to  be  taken  into  consideration. 

The  first  will  be  that  of  inventory  beginning  of  the 
period.  The  period  may  be  either  the  beginning  of  the 
fiscal  year  or  the  beginning  of  the  month.  Retail  stores 
control  their  inventories  at  retail,  though  a  very  great  per- 
centage still  retain  the  old  method  of  controlling  their 
stocks  at  cost.  Where  the  inventory  at  the  beginning  is  set 
up  at  retail,  its  ledger  value  should  be  reduced  to  cost. 

To  this  cost  of  inventory  the  amount  of  merchandise, 
purchased  for  the  period  for  which  the  trading  statement, 
is-set  up,  should  be  added.  From  the  total  of  the  inventory 
beginning,  plus  the  merchandise  purchases,  the  inventory 
on  hand,  better  known  as  inventory  ending  at  the  par- 
ticular period  at  which  the  statement  is  being  set  up, 
should  be  deducted.  This  results  in  showing  the  amount 
of  merchandise  used  in  order  to  produce  the  net 
sales  at  the  beginning  of  the  profit  and  loss  state- 
ment. Consequently,  the  amount  of  merchandise  used 
at  cost  in  order  to  affect  the  net  sales  becomes  the  cost  of 


270  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

the  merchandise  for  the  net  sales  that  have  been  affected. 

Gross  Profits. —  The  gross  profits  take  on  a  considera- 
ble amount  of  importance  in  merchandising,  not  alone  for 
the  amount  of  money  that  they  represent  in  dollars  and 
cents,  but  for  the  mark  up  that  they  represent  on  the  mer- 
chandise. The  merchandising  of  a  department  store  entails 
a  considerable  number  of  details.  The  foremost,  however, 
of  all  these  details  is  the  mark  up.  Merchandise  that  is 
sold  must  carry  with  it  a  certain  profit,  though  it  is  a 
very  common  occurrence  for  a  department  store  to  buy 
quantities  of  merchandise  for  various  departments,  and 
mark  them  at  cost,  and  very  often,  indeed,  below  cost.  To 
the  accountant  it  seems  ridiculous,  to  the  merchant  it 
appears  as  good  bait  to  catch  fish.  In  fact,  department 
store  merchants,  in  order  to  merchandise  properly,  require 
that  the  public  should  get  something  for  nothing  some- 
times, as  well  as  something  for  a  valuable  consideration. 

A  department  is  charged  with  a  certain  percentage  of 
overhead.  It  is  therefore  necessary  for  the  department  to 
produce  a  certain  profit  equivalent  to  this  percentage,  suffi- 
cient to  leave  a  margin  to  cover  the  difference  between  the 
overhead  and  the  net  percentage  of  profit  required.  To 
exemplify  this,  a  buyer  is  engaged  to  purchase  certain 
merchandise,  and  as  manager  of  that  department,  he  will 
be  expected  at  the  beginning  of  the  season  to  show  a  profit 
of  40  per  cent.  The  buyer  will  be  permitted  to  take  cer- 
tain mark  downs,  but  the  well  managed  store  will  insist 
that  the  buyer  and  department  manager  should  close  his 
season's  business  with  a  stipulated  percentage  for  his  goods 
of  33  per  cent.  This  33  per  cent  represents  the  mark  up 
for  the  gross  profits.  It  is  seen  from  this  point  of  view 
that  the  gross  sales  are  the  result  of  the  mark  up  in  mer- 
chandising. 

A  buyer  or  department  manager  cannot  be  held  respon- 
sible for  the  net  profits.  They  can  only  be  expected  to 


PROFIT  AND  LOSS  271 

show  a  gross  profit  on  merchandising.  They  are  not 
responsible  when  it  comes  to  the  operating  burden.  In 
fact,  they  are  not  required,  nor  are  they  engaged,  to  con- 
trol operating  burden.  Their  position  is  to  buy  and  sell, 
with  no  interest,  whatever,  in  the  operating  burden.  Such 
burden  is  controlled  through  the  general  management.  It 
therefore  does  not  fall  to  the  lot  of  the  buyer  to  show  net 
profits,  but  the  gross  profits  are  closely  watched,  not  alone 
when  a  periodic  Profit  and  Loss  statement  is  set  up  either 
monthly  or  closing  the  year,  but  daily,  for  every  movement 
in  the  merchandising.  The  mark  up  is  carefully  scrutinized. 
The  cost  of  sales  deducted  from  the  net  sales  will  give  us 
the  remainder  of  gross  profits  for  the  period.  The  gross 
profits,  divided  by  the  net  sales,  will  give  as  a  quotient  the 
percentage  of  gross  profit. 

Operating  Burden  —  Administration. —  The  operat- 
ing burden  of  a  department  store  is  divided  into  nine 
divisions,  known  as  Administrative,  Buying,  Advertising, 
Selling,  Receiving,  Occupancy,  Delivery,  Indirect  Burden 
and  Workrooms.  Each  division  will  be  treated  separately. 

The  administrative  burden  of  any  organization  relates  to 
expenditures  necessary  to  operate  the  business,  which  a 
single  unit  does  not  take  on  a  direct  charge,  and  which  are 
promulgated  through  executive  offices.  A  department  store 
consists  of  a  number  of  departments  shading  into  the  vari- 
ous accounts  of  merchandising.  Each  department  is  con- 
sidered as  if  it  were  an  individual  store.  Each  department 
is  but  a  unit  of  the  whole  undertaking.  The  administrative 
burden  is  distributed  monthly  to  the  various  units  by  pro- 
rating on  sales,  on  purchases,  on  sales  checks  issued  by  the 
department  monthly,  and  on  the  number  of  packages 
delivered.  In  fact,  conditions  at  each  store  are  such  that 
every  element  of  the  store's  management  must  be  taken 
into  consideration  prior  to  establishing  an  equitable  basis 
for  distributing  the  burden  to  the  various  units.  The  dis- 


272   RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

tribution  is  based  on  the  element  of  expense  to  the  division 
of  burden  it  may  refer  to. 

Executive  Salary. —  Salaries  paid  to  officers  of  the  cor- 
poration who  are  active,  and  executives  who  partici- 
pate in  the  general  management  of  the  organization,  are 
included  under  this  heading.  These  salaries  usually  are 
for  general  manager,  business  manager,  superintendent, 
and  administrative  executives.  These  receive  their  distri- 
bution as  a  charge  to  the  burden  of  the  various  depart- 
ments on  the  basis  of  sales.  That  is,  the  burden  is  pro- 
rated to  the  various  departments  on  net  sales  per  month 
for  each  department  of  the  store. 

General  Office  Salary. —  The  general  office  is  the  central 
station  of  the  entire  store  system.  Every  branch  of  ac- 
counting of  the  house  system,  in  fact,  the  entire  network, 
of  the  store's  management,  is  centralized  in  this  office.  It, 
will  be  divided  into  such  offices  as  the  general  cashier, 
paymaster's  office,  statistical  department,  auditing  depart- 
ment, billing  department  (this  department  conducts  ac- 
counts receivable  ledger,  rendering  bills  and  statements  for 
charge  accounts),  accounts  payable  department,  corre- 
spondence bureau,  mailing  department,  general  accounting 
and  tracing  bureau. 

The  individual  merchandising  department  heretofore 
mentioned  is  a  single  unit  of  the  entire  undertaking  and 
generally  does  not  carry  its  own  office  to  care  of  the 
accounting  of  the  department.  There  are,  however,  organ- 
izations where  the  volume  of  business  may  run  into  propor- 
tions of  upward  to  $25,000,000  per  annum,  where  it  is 
necessary  for  each  buyer  to  have  a  set  of  merchandising 
clerks  to  control  the  individual  stocks.  That  is  a  separate 
problem  in  itself  which  will  be  treated  under  Merchandis- 
ing. However,  as  to  general  accounting,  the  general  office 
controls  this  feature  of  the  store's  operations. 

This  item  of  burden  is  pro-rated  to  the  various  depart- 


PROFIT  AND  LOSS  273 

ments  on  the  basis  of  net  sales.  It  might  be  appropriate 
at  this  time  to  explain  pro-rating  of  net  sales.  For 
example,  if  the  store  does  a  monthly  business  of  $1,000,000 
and  a  department  has  done  a  business  of  $100,000,  the 
department  doing  the  $100,000  business  in  pro-rating  the 
net  sales  should  be  charged  with  10  per  cent  of  such  burden 
distribution. 

General  Office  Supplies. —  Office  supples  usually  run 
into  very  large  proportions  in  a  department  store,  even  to 
a  surprising  degree.  Still,  every  consideration  for  econ- 
omy should  not  be  overlooked  in  using  such  supplies,  which 
usually  consist  of  stationery,  printing,  books,  and  tabula- 
tion sheets.  All  supplies  issued,  whether  they  be  for  the 
general  office  or  any  other  department,  should  be  issued 
from  the  supply  department  through  a  requisition,  in 
order  that  the  supply  inventory  may  be  credited  with  sup- 
plies which  are  removed  from  the  supply  department.  Dis- 
tribution for  this  is  similar  to  general  office  salary.  All 
supplies  that  are  issued  to  the  administrative  body  receive 
similar  distribution. 

Credit  Department  Salary  and  Burden. —  Like  all  busi- 
ness enterprises  which  sell  merchandise  on  credit,  the  credit 
department  is  established  in  order  to  protect  the  circulat- 
ing capital  outstanding.  Every  store  gives  the  charge 
accounts  the  same  procedure  for  extending  credit  limits 
and  collections  as  any  manufacturer,  wholesaler,  jobber  or 
importer  does.  It  is  necessary  that  a  complete  record  of 
each  account  be  maintained  in  order  that  reference  may 
be  made  to  the  responsibilities  of  each  account.  The  cost  of 
maintaining  such  a  department  is  usually  more  than  most 
organizations  would  care  to  admit.  Very  often  faulty 
accounting  is  misleading  to  the  extent  that  improper  ac- 
counting cannot  be  set  up  for  statistical  purposes  in 
determining  the  exact  cost  of  conducting  charge  accounts. 
Impersonal  accounts,  segregating  overhead  for  the  credit 


274  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

department,  would  be :  Salary,  stationery,  subscriptions  to 
mercantile  agencies,  credit  investigating,  maintenance  of 
0.  K.ing  system,  collections,  and  legal  fees.  All  this  bur- 
den is  administrative,  since  it  has  no  direct  bearing  on  any 
one  department,  and  since  all  departments  of  the  store 
receive  the  same  attention  without  any  discrimination.  The 
distribution  of  the  credit  department  cost  which  is  ap- 
plicable to  each  department  in  the  store,  must  be  on  the 
charge  sales  of  each  department. 

Legal  Expense. —  It  can  be  said  safely  that  all  matters 
involving  litigation  are  best  settled  out  of  court.  But  there 
are  occasions  where  employing  legal  procedure  is  unavoid- 
able. All  legal  expenses  come  under  the  head  of  adminis- 
trative, unless  the  legal  procedure  happens  to  apply  to  a 
department  direct.  If  this  occurs,  the  distribution  for  such 
legal  procedure  can  only  be  applied  to  the  merchandising 
department  to  which  the  circumstances  relate.  Where 
legal  expense  is  purely  administrative,  it  should  be  pro- 
rated on  the  sales. 

Charity  Account. —  Almost  every  organization  sets 
aside  a  certain  sum  of  money  yearly  to  be  given  to  charity. 
This  is  perhaps  done  more  extensively  in  a  department 
Btore  than  in  any  other  organization.  For  the  store  deals 
principally  with  women,  and  the  women  workers  of  the 
charitable  organizations  are  always  making  it  a  point  to 
make  certain  requests  for  charitable  donations  from  the 
Btore  with  which  they  trade.  Refusal  very  often  is  out  of 
the  question.  It  behooves  the  management  to  be  very  care- 
ful before  making  a  final  disposition  of  any  request  put  to 
them  for  charity. 

This  is  a  direct  charge  to  administrative  burden,  since 
no  special  department  of  the  store  is  directly  responsible 
for  the  charitable  donation.  Equitable  distribution  of  such 
burden  is  necessary.  Should  there  be  any  benefit  derived 
from  the  charitable  donation,  it  would  be  of  equal  benefit 


PROFIT  AND  LOSS  275 

to  all  departments.  Some  stores,  in  making  their  distri- 
bution for  advertising,  will  charge  charity  to  advertising. 
Such  action  could  not  be  logically  sustained,  as  charity  is 
not  given  for  advertising  purposes.  Any  benefit  derived 
by  the  store  in  the  form  of  sales,  as  an  after  effect  of  chari- 
table donation,  would  be  reciprocity  rather  than  selling 
effected  through  advertising.  Charity  is  charged  to  each 
department  by  pro-rating  on  the  net  sales.  Recent  rulings 
do  not  permit  deductions  for  charities  by  corporations  in 
income  tax  returns,  though  individuals  are  permitted  this 
deduction. 

Information  and  Investigation. —  This  is  rather  a  pecu- 
liar caption  and,  for  matters  of  accounting,  it  certainly 
does  not  convey  any  meaning.  Still,  it  would  seem  rather 
peculiar  should  a  department  store  not  have  an  account  of 
this  kind.  The  store  employing  executives  to  whom  exten- 
sive privileges  are  given,  from  a  managerial  viewpoint, 
finds  it  necessary  to  investigate  the  character  and  knowl- 
edge of  each  applicant  so  extensively  as  to  make  the  direc- 
tors or  owners  of  the  organization  reasonably  sure  that  the 
person  whom  they  are  going  to  appoint  will  give  satisfac- 
tory service.  Mistakes  are  very  dangerous,  not  to  say 
costly.  Considerable  expense  is  attached  to  investigating 
in  order  to  determine  upon  the  appointment  of  such  execu- 
tives. 

Then,  again,  the  store  will  employ  detectives,  better 
known  as  investigators,  to  keep  watch  over  persons  addicted 
to  purloining.  How  extensively  these  persons  work  is  very 
surprising.  There  is  undoubtedly  at  least  one  case  a  day 
in  most  large  stores  and  an  equal  number  is  occasionally 
found  in  smaller  ones.  That  such  conditions  exist  is  known 
to  the  management,  and  every  precaution  must  be  taken  for 
protection. 

This  burden,  like  all  other  administrative  burdens,  is  not 
a  direct  charge  to  any  one  department.  Therefore  it  must 


276   RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

be  distributed  equitably.  This  is  done  by  pro-rating  on  net 
sales. 

Traveling  Expenses. —  Executives  occasionally  travel 
to  various  cities  in  order  to  investigate  the  systems  and 
management  of  other  institutions,  in  order  that  informa- 
tion may  be  gathered  that  may  be  of  advantage  to  their 
own  organization.  Further  than  this,  traveling  may  be 
amongst  their  creditors,  investigating  market  conditions  as 
to  merchandise,  or  accompanying  buyers  for  diverse  rea- 
sons. In  fact,  traveling  may  be  on  a  large  scope  in  order 
that  the  organization  may  be  benefited  directly  by  these 
trips.  This  is  administrative  expense  and  is  pro-rated  to 
the  various  departments  on  the  net  sales. 

Policy  Account. —  This  account  is  very  often  abused  by 
its  use  as  an  outlet  for  anything  except  what  the  store 
stands  for.  Every  organization,  at  its  inception,  deter- 
mines upon  a  certain  policy  to  pursue.  It  is  assumed  that 
such  policy  is  for  the  best  interest  of  the  concern.  With  a 
department  store  there  is  but  one  policy  and  that  is  "  cus- 
tomer first." 

It  is  readily  admitted  that  during  the  last  half  century 
women  have  become  more  interested  in  commercial  affairs 
and  are  now  holding  an  important  post  in  the  world  of  com- 
merce. "With  all  that,  the  percentage  of  women,  who  are 
educated  along  commercial  lines,  in  order  that  they  may 
thoroughly  understand  the  position  in  which  a  merchant 
is  placed,  either  in  production  or  distribution  of  merchan- 
dise, is  indeed  very  small.  The  natural  result  is  that  the 
women,  who  are  the  principal  purchasers  in  a  department 
store,  will  insist  upon  the  most  unreasonable  demands. 
They  will  make  complaints  that  would  be  astonishing  to 
those  who  are  not  acquainted  with  retail  methods  of  trade. 
And  still,  with  all  that,  it  must  be  remembered  that  ' '  Cus- 
tomer is  first,"  and,  whether  she  is  right  or  unreasonably 
wrong,  she  is  still  right,  and  must  be  so  treated. 


PROFIT  AND  LOSS  277 

She  must  receive  preference  in  every  transaction.  This 
is  paramount.  There  must  be  no  deviation  from  this.  To 
the  mind  well  trained  in  commercial  affairs,  other  than 
retailing,  it  seems  preposterous,  and  as  if  such  preference 
to  customer  first  means  either  a  limited  business  or  closing 
the  front  doors.  Referring  again  to  the  account  known  as 
policy,  it  will  often  occur  that  allowances  are  being  made 
on  certain  expenditures,  or  even  losses  are  sustained,  by 
giving  preference  to  the  customer.  In  these  cases,  the  loss 
or  expenditure  should  be  charged  to  the  policy  account. 

The  expenditure  may  arise  by  allowing  a  customer  cash 
for  any  claim  that  would  directly  interfere  with  the  good 
will  of  the  establishment.  Or  it  may  be  due  to  the  return 
of  merchandise  after  it  has  been  worn  a  long  time;  in 
fact,  to  any  number  of  reasons  (and  some  of  them  are  cer- 
tainly marvelous  in  their  conception) .  Disposition  of  these 
cases  is  generally  put  to  the  Superintendent  of  the  estab- 
lishment. While  he  endeavors  to  make  the  best  concession 
and  tries  to  reason  as  much  as  he  may  dare  to,  he  will 
always  remember  that  persistency  on  the  part  of  the  cus- 
tomer will  mean  greater  expenditure. 

Federal  Taxes. —  There  are  several  kinds  of  taxes  pay- 
able to  the  Federal  Government.  These  come  in  the  form 
of  Income  Tax,  Capital  Tax,  and  revenue,  in  its  relation  to 
negotiable  instruments,  for  which  the  department  store 
comes  into  direct  contact,  and  such  taxes  as  may  be  enacted 
by  the  Federal  government. 

The  greatest  of  these  is  the  income  tax.  While  it  is  diffi- 
cult to  determine  at  the  beginning  of  the  year  or  during 
the  current  year  what  the  volume  of  taxes  may  be,  still 
every  merchant  will  know  about  what  his  profits  will  ap- 
proximate on  the  volume  of  business  expected  for  the  year. 
It  would  be  quite  an  unfair  distribution  to  allow  federal 
taxes  to  remain  open  until  the  profits  of  the  fiscal  year  hare 
been  determined,  and  then  to  charge  the  various  depart- 
ments and  the  surplus  with  one  particular  entry. 


273  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

It  is  necessary,  therefore,  to  set  up  a  reserve  for  federal 
lax,  doing  so  monthly,  and  charging  the  overhead  with  the 
approximated  monthly  reserve,  and  crediting  the  reserve 
for  federal  taxes.  The  Law  does  not  permit  taxes  to  be 
deducted  as  part  of  the  store's  burden.  But  the  Law  does 
permit  and  requires  the  amount  of  taxes  paid  for  the  cur- 
rent year  to  be  charged  against  the  surplus  of  that  year. 
In  carrying  over  the  surplus  to  the  following  year,  which 
is  to  be  added  to  the  capital,  providing  the  balance  of  such 
surplus  has  not  been  distributed  as  dividends,  setting  up 
the -reserve  and  charging  monthly  the  approximated  in- 
come—  which  can  readily  be  determined  through  the 
monthly  profit  and  loss  statement  —  does  not  involve  hard- 
ship at  the  end  of  the  fiscal  year  in  meeting  the  obligations 
of  the  Federal  government. 

A  step  further  in  this  direction,  which  at  the  same  time 
assists  the  financial  management  of  an  organization,  would 
be  upon  determining  the  amount  of  the  income  tax 
monthly  to  withdraw  such  funds  from  the  business  and  to 
invest  them  in  bonds  or  other  tangible  property  readily 
converted  into  cash.  Thus  interest  is  enabled  to  accrue  on 
the  investment  for  taxes  which,  though  payable  after  the 
end  of  the  fiscal  year,  should  be  treated  as  if  it  were  pay- 
able monthly. 

There  are  months  in  the  retail  business  which  must,  of 
necessity,  show  a  loss.  During  these  instances  it  is  up  to 
the  management  to  use  discretion.  Most  of  all,  when  their 
profits  are  being  made,  it  is  incumbent  upon  the  manage- 
ment to  set  up  a  monthly  reserve  for  income  tax  and  for 
Federal  capital  tax.  A  reserve  should  be  set  up  monthly 
debiting  its  approximated  monthly  proportion  to  burden 
and  crediting  reserve  for  Federal  tax ;  reversing  all  Federal 
lax  reserves  and  the  closing  of  the  fiscal  year. 

Revenue  Stamps. —  Revenue  stamp  tax  is  a  tax  on 
negotiable  instruments.  While  it  may  be  treated  as  an 


PROFIT  AND  LOSS  279 

additional  cost  to  interest,  it  is  not  a  logical  charge  for  the 
reason  that  the  revenue  stamp  attached  to  the  note  repre- 
sents a  Federal  tax  and  not  interest.  For  this  cause,  a 
reserve  is  not  necessary,  but  the  tax  paid  is  a  direct  charge 
to  burden,  allowable  in  the  deductions  of  overhead  in  com- 
puting income  tax. 

State  Tax. —  In  most  states,  a  state  capital  tax  is  placed 
on  all  corporations.  This,  like  the  reserve  for  Federal 
taxes,  should  be  set  up  in  accordance  with  prior  taxes, 
which  are  usually  based  on  the  working  capital  of  the 
organization.  In  New  York  state,  organizations  should  be 
particular  in  their  reserve  for  state  taxes  and  consider  it 
in  the  same  manner  as  the  Federal  tax.  No  reversing  of 
the  entries  is  necessary  at  closing,  since  the  state  tax  is 
deductible  in  computing  the  Federal  tax. 

Municipal  Tax. —  These  taxes  may  be  many,  such  as 
water  rent,  land  tax,  trade  license.  Such  taxes  have 
a  tendency  to  be  based  on  the  premises  of  an  establishment. 
Where  they  are  so  based  upon  the  premises  in  which  the 
organization  is  carrying  on  trade,  such  taxes  are  an  addi- 
tional cost  for  occupying  the  premises,  and  are  chargeable 
to  occupancy.  Municipal  tax,  principally  referred  to  in 
this  caption,  is  that  of  a  mercantile  license  to  carry  on 
trade.  Some  municipalities  will  charge  as  low  as  a  few 
dollars  for  these  licenses.  Other  cities  have  none.  Some 
cities  make  their  charge  on  the  volume  of  business  trans- 
acted, so  that  the  cost  of  the  license  for  an  organization 
doing  a  business  of  $5,000,000  may  be  as  high  as  $4,000  or 
$5,000,  graduated  in  accordance  with  the  greater  volume 
transacted.  Thus,  it  is  found  necessary  to  set  up  a  reserve 
monthly  to  meet  the  municipal  tax  at  the  period. 

It  is  customary  in  all  municipalities  to  render  tax  bills 
during  the  first  month  beginning  with  the  year.  In  set- 
ting up  this  reserve,  monthly  approximations  based  on  pre- 
vious years'  transactions  would  be  the  debiting  of  adminis- 


280  KETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

trative  expense  and  a  credit  to  reserve  for  municipal  tax. 
When  the  tax  is  paid,  reserve  will  receive  its  debit. 

Educational  Welfare. —  All  successful  and  progressive 
retail  organizations  find  education  necessary,  in  order  to  be- 
come a  factor  in  a  community.  In  order  to  promote  their 
sales,  they  must  educate,  not  only  their  executives  along  the 
lines  that  will  make  them  more  valuable  to  the  organization, 
but  their  buying  staff,  their  selling  help,  as  well  as  all  the 
help  connected  with  the  various  divisions  of  the  organization. 
This  education  may  be  in  the  form  of  lectures  by  outsiders, 
school  rooms  where  special  instructors  are  employed,  travel- 
ing from  one  city  to  another,  visiting  various  stores  to 
obtain  knowledge  and  to  ascertain  how  the  various  ele- 
ments connected  with  retailing  are  conducted,  in  order  that 
the  coworkers'  knowledge  may  be  enhanced  so  that  their 
ultimate  value  will  mean  a  greater  benefit  to  the  store 
organization. 

All  this  requires  the  expenditure  of  certain  funds.  Such 
expense  should  be  charged  directly  to  an  account  known  as 
"  Educational  Welfare." 

Memberships. — Membership  in  an  association,  which  is 
'in  the  form  of  dues  paid  to  such  association,  that  may 
assist  the  administrative  body  of  the  organization,  is  a 
direct  administrative  expense.  The  associations,  to  which 
membership  cost  would  be  applicable,  are  usually  merchant 's 
association,  credit  men's  association,  advertising  or  press 
clubs,  or  other  societies  through  membership  in  which 
benefit  is  derived  by  the  store. 

Subscriptions  and  Periodicals. —  There  are  always  a 
number  of  publications,  such  as  trade  journals,  business 
magazines  and  business  books  which  will  assist  the  various 
buyers  and  executives  either  in  merchandising  or  manage- 
ment. Usually  the  greatest  item  of  these  expenses  is  sub- 
scriptions for  trade  journals.  While  they  may  not  be 
interpreted  as  educational  welfare,  they  cannot  be  a  direct 


PROFIT  AND  LOSS  281 

charge  to  buying  expense.  It  is  one  of  the  many  expenses 
of  a  retail  establishment  which  can  be  well  dispensed  with. 
But  modernization  demands  that  the  buyers  and  execu- 
tives of  a  retail  establishment  be  constantly  in  touch  with 
all  market  conditions  and  changes.  These  are  usually  writ- 
ten up  in  trade  journals,  and  by  obtaining  knowledge 
through  such  publications,  the  store  becomes  a  beneficiary. 

Generally,  a  store  will  make  provision  for  expending  a 
stipulated  amount  each  year  for  such  publications.  It  is, 
therefore,  desirable  that  a  separate  account  be  kept,  not 
only  setting  up  expenditures  for  subscriptions  and  publi- 
cations, but  also  having  them  enumerated  under  this 
account  for  further  reference. 

Planning  Department. —  Coordinating  all  systems  as  if 
they  were  one,  augmenting  a  spirit  of  improvement  for 
better  presentation  of  merchandise,  store  layout  and  house 
system  come  within  the  scope  of  the  planning  department. 

Problems  are  here  analyzed  to  the  most  minute  detail 
and  carefully  studied  for  perfect  solution,  a  definite  deci- 
sion is  made  prior  to  placing  it  into  execution,  rather  than 
by  means  of  the  old  method  of  haphazard  guess  or  imagi- 
native thoughts  of  "  it  will  do  better  this  way. ' '  Thoughts 
that  are  phantasmagorial  cannot  impulsively  be  put  into 
effect.  The  planning  department  should  be  headed  by  a 
man  with  thorough  knowledge  of  merchandise,  sales  pro- 
motion and  department  store  accounting;  a  rare  combina- 
tion, but  a  most  essential  one  for  concrete  results.  In  sup- 
port of  such  an  executive,  a  committee  of  the  store's  ablest 
coworkers  should  form  a  board  to  delve  into  planning  prob- 
lems and  conclude  a  perfect  solution  for  them. 
.  A  plan  to  move  a  department  to  another  location  is  not  a 
simple  matter.  The  owner  of  a  store  or  a  general  manager 
alone  counts  for  naught  in  determining  how,  where  and 
when  it  should  be  done,  regardless  of  what  his  individual 
opinion  may  be.  The  question  is  placed  in  the  hands  of 


282   RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

the  planning  department,  which  submits  a  detailed  written 
report  of  the  chief  executive  of  the  organization.  The 
approval  or  return  of  his  plan  to  the  planning  department, 
with  recommendations  for  other  considerations,  is  the  cor- 
rect procedure.  The  cost  and  method  of  procedure  should 
be  incorporated  in  the  report.  The  moving  of  tables,  racks 
or  fixtures,  no  matter  how  trivial,  comes  within  its  scope. 

A  well  managed  planning  department  will  have  its  own 
office  with  blue  prints  of  the  entire  store  layout.  These 
cover  merchandising  departments,  receiving,  delivery  and 
offices,  store  organization  blue  prints  and  the  systems  of 
operation.  To  prevent  costly  errors,  it  is  a  cardinal  point 
in  planning  to  picture  the  organization. 

The  expense  of  maintaining  this  department  is  an  admin- 
istrative burden  and  is  pro-rated  on  the  basis  of  sales. 

Employment    Department. —  In    most    stores    help    is 
employed  through  the  superintendent's  office.     The  scope 
of  this  office  is  so  varied  as  not  to  justify  the  importance 
attached  to  the  records  governing  the  help  question  when* 
help  is  engaged  here. 

The  superintendent's  office'  should  be  sub-divided  into 
that  of  the  store  superintendent  and  that  of  the  employ- 
ment superintendent.  The  latter  should  be  headed  by  an 
executive  qualified  in  the  selection  of  help  for  various 
functions.  The  necessary  executive  requisites  are  to  know 
the  duties,  ability  and  requirements  for  every  position  in 
the  store,  the  salaries  paid  by  other  stores  for  similar  posi- 
tions, and  to  keep  the  help  wanted  advertising  down  to  a 
minimum. 

The  employment  department  must  be  correlated  to  the 
planning  director  or  planning  department  and*  the  store 
superintendent.  The  chart  showing  the  relative  position 
of  each  coworker,  from  the  minor  position  to  that  of  the 
manager  of  the  department,  should  be  readily  accessible  in 
the  employment  department.  A  chart  or  blue  print  of 


PROFIT  AND  LOSS 


28S 


every  department  must  be  in  this  office.  In  the  allotted 
space  denoting  the  position,  the  coworker's  name  should 
appear  and  the  salary  paid  for  his  services. 

PLAN  FOR  RECEIVING  DEPARTMENT 


Delivery  Manager 
Name                           $ 

11  Bookkeeper 
Name 

S 

2nd  Asst.  Receiving 

Name                    S 

3rd  Asst.  Price  Mark- 
ing 

Name                   8 

4th  Asst.   Distributor 
of  new  mdse. 

Name                   $ 

i 

Checker 
Name 

8 

Ticket  writer 
Name                   8 

Distributor  to  depts. 

Name                  8 

1 

Checker 

Name 

8 

Ticket  writer 

Name 

$ 

Distributor  to  depts. 
Name                   8 

1 

Checker 

Name 

S 

Ticket  writer 
Name                   8 

1 

2nd  Count 

Name 

8 

Ticket  writer 

Name 

8      1 

1 

2nd  Count 
Name 

$ 

Ticket  writer 

Name 

8 

From  the  receiving  department  plan,  it  will  be  seen  that 
there  is  a  complete  layout  of  all  coworkers  employed  in 
this  department  to  perform  a  special  function,  though  as- 
sistance may  be  given  by  it  to  other  functional  operations. 
!When  a  position  is  open,  no  name  will  appear  in  the 


284  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

allotted  space  on  the  chart.  This  is  accomplished  by  noti- 
fying the  employment  superintendent  prior  to  discharging 
a  coworker.  Or,  where  a  resignation  is  accepted,  the  name 
in  the  allotted  oblong  is  eradicated.  By  charts  of  this 
description,  for  both  selling  and  non-selling  departments,  a 
control  of  help  is  established. 

Applicants  for  positions  must  be  requested  to  fill  in 
application  blanks.  The  best  forms  obtainable  for  such 
applications  can  be  set  up  in  conjunction  with  store 
requirements,  by  adopting  the  questionnaires  used  by  bond- 
ing companies  in  applying  for  a  bond.  The  application 
must  be  completed  before  an  interview  with  the  employ- 
ment superintendent  can  be  obtained.  In  the  event  of  em- 
ployments being  granted,  the  newly  employed  coworker 
receives  instructions  from  the  store  school,  which  he  must 
attend.  The  paymaster's  office  is  notified,  his  name  is 
placed  on  the  proper  departmental  chart,  and  his  applica- 
tion is  placed  on  the  file  of  "  active  coworkers." 

Where  an  application  has  been  rejected,  such  application 
should  be  placed  in  an  open  list,  filed  by  positions.  These 
applicants  are  possible  candidates  for  future  openings, 
their  names  being  alphabetically  arranged. 

In  addition  to  coworkers'  applications  being  placed  in 
active  service  file,  a  record  should  be  kept  of  every  coworker 
identifying  the  coworker,  with  his  vocational  ability.  It 
may  be  that  a  stenographer  may  also  be  a  good  bookkeeper, 
saleswoman  or  artist.  If  an  opening  occurs  for  a  better 
position,  the  selection  should  be  made  from  the  rank  and 
file  rather  than  by  referring  to  the  application  file  or  news- 
paper help  wanted. 

The  employment  office  should  maintain  a  coworker 's 
record  of  the  number  of  times  tardy,  late  or  absent  from 
business,  characteristics  as  to  disposition,  dress  and  ambi- 
tion. Reports  as  to  personality  are  obtained  through 
reports  of  department  managers  and  interval  inspections 


PROFIT  AND  LOSS  285 

by  the  superintendent's  office.  An  organization  may  also 
have  a  personal  director,  or  a  department  may  be  main- 
tained which  assumes  supervision  of  the  store  personnel. 
This  director  must  be  correlated  to  the  employment  office, 
and  must  coordinate  with  the  store  superintendent. 

Educational  Department. —  Not  until  the  last  decade 
have  department  stores  taken  the  coworker  in  hand,  devel- 
oping him  so  as  to  become  a  part  of  the  store  under  real 
organization.  The  prime  reason  for  this  move  was  insti- 
tuted by  the  retail  help  situation,  especially  in  the  selling 
element  of  the  store. 

The  educational  department,  established  with  school 
rooms,  and,  for  its  curriculum  salesmanship,  house  system, 
discipline,  personality,  speech,  etiquette  and  general  edu- 
cation, subordinated  only  by  enthusiasm,  performs  a  two- 
fold service.  It  indirectly  increases  the  profits  of  the  or- 
ganization through  the  creation  of  efficiency  and  coopera- 
tion and  assists  the  coworker  towards  better  production  for 
a  greater  remuneration.  The  employment  superintendent 
is  instructed  to  give  preference  to  high  school  graduates 
for  any  situation.  This  class  of  help  is  more  easily  trained 
for  various  capacities,  and  has  been  found  to  give  better 
results  than  the  training  of  broken  down  salesmen  and 
clerks  does. 

The  educational  director  should  possess  exceptional  qual- 
ifications. He  cannot  assume  the  responsibilities  of  the 
department  until  he  himself  has  made  a  careful  study  of 
the  entire  establishment  and  accounting  system.  He  must 
possess  as  well  a  thorough  knowledge  of  the  store  policy 
and  methods  of  merchandising. 

The  school  room  should  be  planned  in  the  same  manner 
as  any  of  the  public  school  houses.  Its  library  should  be 
complete  and  the  circulation  of  its  books  on  the  same  prin- 
ciple as  those  of  public  libraries. 

The  schooling  embraces  various  courses  of  study.    Train- 


286   RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

ing  should  be  complete,  subject  to  tests  and  examinations. 
It  includes  text-books  for  theory,  and  actual  demonstra- 
tions for  practice  to  complete  the  teachings.  Store  school- 
ing should  be  compulsory  and  a  condition  of  employment. 
Promotions  should  be  made  by  examinations,  testing  ability 
for  adequacy  in  performing  new  functions. 

The  expenditures  for  this  department  depend  upon  the 
size  of  the  store.  All  expenditures  are  segregated  for  a 
monthly  detailed  report.  The  allocation  of  this  burden 
should  be  on  the  basis  of  sales. 


CHAPTER  XII 

BURDEN 

Occupancy. —  In  premises  that  are  rented  from  land- 
owners, it  has  been  the  custom  of  accountants  to  set  up  a 
Profit  and  Loss  statement,  itemizing  the  rent  paid  for  the 
use  of  the  premises  as  rent  paid.  Thus  the  item  becomes  a 
fixed  overhead  charge  to  operations.  The  correctness  of  this 
is  acceded,  inasmuch  as  rent  is  defined  as  payment  for  the 
use  of  property.  A  departure  from  the  usual  form  of  set- 
ting up  rent  is  the  cost  of  making  a  property  a  tenancy 
for  an  organization  to  conduct  business'.  The  actual  rent 
paid  to  the  owners  becomes  but  a  part  cost  to  the  occupant. 
The  up-keep  of  the  premises  must  of  necessity  be  an  added 
cost  for  the  occupancy  of  the  premises  for  the  proper  con- 
duct of  retailing.  The  segregation  of  occupancy  cost  gives 
a  better  analysis  of  the  store  burden. 

Direct  Rent. —  In  the  analysis  of  occupancy,  where  the 
property  is  rented  from  the  owner,  the  first  element  of  cost 
is  the  rent  paid  monthly  in  agreement  with  the  owner  for 
the  use  of  the  premises.  This  element  of  cost  is  designated 
as  a  direct  rent  or  prime  cost.  No  merchant  will  occupy 
another's  property  unless  an  agreement  in  the  form  of  a 
lease  is  entered  into.  Certain  covenants  of  the  lease  may 
make  the  tenant  assume  the  payment  of  water  rents,  taxes, 
replenishment  of  the  property,  and  responsibility  for  its 
general  condition  —  thereby  increasing  the  tenant's  cost  for 
the  occupancy  of  the  premises. 

Elevator  Expense. —  A  retailing  establishment  occupy- 
ing a  building  with  many  floors  finds  itself  in  a  position  to 
equalize  each  floor  as  a  drawing  power  to  be  visited  by  its 
patrons.  To  equalize  each  floor,  every  possible  means  is 

287 


288  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

resorted  to  to  make  it  accessible.  To  this  end  escalators 
are  erected  and  capacious  lifts  are  installed  to  make  ascen- 
sion to  upper  floors  inviting.  The  mechanical  upkeep  of 
these  lifts,  liability  insurance  and  salaries  paid  to  opera- 
tors incurs  an  additional  cost  for  the  premises  and 
becomes  an  indirect  charge  to  occupancy. 

Porters  and  Maids. —  The  services  of  porters  and  maids 
in  its  relation  to  additional  cost  of  occupancy  brings  forth 
a  thought  of  service  to  patrons.  A  store  may  set  up  an 
account,  charging. the  service  account  with  all  expenditures 
for  service  to  patrons.  Amongst  these  may  be  maids.  A 
distinction  should  be  made  between  service  to  patrons  and 
janitor  service.  It  is  necessary  to  keep  the  premises  spick 
and  span.  The  porter's  functions  take  on  greater  propor- 
tion and  become  quite  an  organization  in  themselves,  as  the 
store  becomes  larger  and  the  occupied  space  is  enlarged. 
The  salaries  paid  for  the  employment  of  porters  may  be 
viewed  as  janitor  service  and  logically  construed  as  an 
additional  cost  to  occupancy.  They  are  distributed  to  the 
various  departments  on  the  same  basis  as  direct  rent. 

Porter's  and  Maid's  Supplies. —  The  cleanliness  of  the 
store  through  remuneration  for  services  rendered  by  por- 
ters is  only  a  part  of  the  cost  of  up-keep.  The  supplies 
necessary  to  perform  the  functions  of  store  janitors  cannot 
be  charged  to  any  account  but  that  to  which  they  bear  a 
strict  relationship.  These  supplies  are  segregated  from  all 
other  supplies,  charged  to  departments  using  diverse  needs, 
and  become  an  additional  element  to  occupancy  cost. 

Light. —  Whether  a  store  generates  its  own  electric 
current  or  buys  its  use  from  outside  companies,  it  must  be 
segregated  into  the  divisions  of  occupancy  and  advertising 
window  display.  Very  few  stores,  indeed,  are  fortunate 
enough  to  occupy  premises  where  a  sufficient  amount  of 
daylight  can  be  used  to  eliminate  the  use  of  artificial  light. 
It  logically  follows,  in  order  to  occupy  the  premises  to  con- 


BURDEN  289 

duct  business,  that  artificial  light  is  a  necessity.  This 
necessity  becomes  an  additional  cost  for  occupancy. 

Current  that  is  used  to  display  merchandise  in  show  win- 
dows is  an  advertising  feature.  It  is  chargeable  to  adver- 
tising under  window  display  costs.  All  lighting  fixtures, 
incandescent  lamps,  arc  lamps,  wiring,  electricians'  sala- 
ries, gas,  gas  fixtures,  globes,  burners,  are  a  further  cost  to 
light.  Its  distribution  is  based  on  the  number  of  lamps 
burned  in  each  department.  Where  separate  meters  are 
installed  for  floor  sections,  the  cost  is  readily  obtainable. 

Heat. —  Heat  and  power  should  be  divided  under  two 
captions:  Charging  power  used  for  light  to  the  account 
set  up  for  light  cost,  usually  determined  from  switchboard 
readings  of  the  lighting  generator,  and  heat  for  the  prem- 
ises, to  its  own  account,  headed  "  Heat."  "Where  the  store 
is  large  enough  to  have  a  separate  auxiliary  department 
conducting  its  own  power  plant  for  light  and  steam,  cost 
accounting  methods  become  applicable.  To  determine  the 
cost,  the  elements  to  be  considered  are  fuel,  labor,  space, 
repair,  equipment  supplies,  water  tax,  boiler  insurance,  and 
other  insurances.  Consumption  of  heat  may  be  deter- 
mined by  an  analysis  of  cost  between  the  summer  months 
with  that  of  the  winter  months,  allowances  being  made  for 
extra  use  of  window  lights. 

Where  a  store  purchases  its  current  for  light  and  pow-ri*, 
the  heating  cost  is  ascertained  by  setting  up  the  cost  of 
fuel,  labor,  repairs,  water  supplies  and  boiler  insurance. 
When  heat  is  necessary  for  the  comfort  of  the  coworkers 
and  patrons  an  additional  charge  for  occupancy  occurs. 
Thus  a  cost  additional  to  previous  obtained  occupancy 
cost  is  assimilated. 

Water  Rent. —  The  cost  of  water  rent  is  in  the  form 
of  taxes,  levied  by  the  municipality  or,  in  some  communi- 
ties, by  private  owned  corporations.  It  may  well  be  termed 
supplies  necessary  for  occupancy,  or  for  generating  power, 


290  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

similar  to  fuel.  Where  spring  water  is  purchased  for  the 
use  of  the  coworkers  or  patrons,  it  cannot  be  charged  to 
occupancy.  A  division  is  then  set  up  and  applied  to  co- 
workers'  welfare  or  store  service  account,  whichever  the 
circumstance  may  be. 

Amortization. —  Denning  amortization,  its  interpreta- 
tion applies  to  periodic  charges  to  operating  expenses  or 
charges  to  profits  or  income  from  paid  commercial  arrange- 
ments of  contracts,  bonds,  leaseholds,  premiums  or  dis- 
counts, buildings,  machinery  and  equipment.  There  are 
occasions  where  a  corporation  may  sell  its  bonds  at  a  pre- 
mium, that  is,  above  their  par  value.  Such  excess  should 
be  shown  on  the  balance  sheet  as  a  reserve  for  interest  and 
periodically  charged  off  over  the  period  of  the  bond  to 
adjust  the  interest  reserve  of  the  bond  issue.  This  excess 
will  be  carried  as  a  deferred  credit  until  it  is  washed  out. 
The  reserve  application  will  refer  to  bonds  sold  below  par. 

The  amortization  of  leaseholds  on  property  will  cover  the 
period  of  prepaid  rentals.  An  organization  will  lease  land 
upon  which  a  structure  will  be  erected,  in  which  the  organ- 
ization will  conduct  its  affairs.  The  leasehold  on  the  land 
will  cover  a  term  of  years,  at  the  termination  of  which  the 
lease  may  be  renewed  or  the  land  returned  to  the  owner  in 
its  original  state  and  the  structure  demolished.  Or  the 
leasehold  may  require  the  lessee  to  relinquish,  with  or  with- 
out a  bonus,  all  improvements  on  the  land  to  the  lessor.  In 
addition  to  this,  the  lessor  may  charge  a  monthly  rental 
covering  the  life  of  the  lease.  The  organization  having 
erected  a  structure  upon  the  land,  will  carry  the  cost  of 
such  structure  as  an  asset  upon  its  books.  Should,  for 
example,  the  improvements  and  structure  value  be  $100,000, 
and  the  leasehold  have  a  life  of  20  years,  with  all  rights  and 
privileges  to  be  relinquished  without  any  consideration  on 
the  part  of  the  lessor,  the  organization  must  pay  to  the 
lessor  a  yearly  rental  of  $5,000  for  ground  rent  (land 


BURDEN  291 

leasehold).  The  organization  will  make  the  monthly  pay- 
ments at  the  rate  of  $5,000  per  annum,  charging  such  pay- 
ment as  rent  for  occupying  the  premises.  In  addition 
thereto,  1/20  of  the  structure  value,  at  its  monthly  propor- 
tion per  annum,  will  be  written  off  of  the  $100,000  outlay 
or  will  amortize  the  structure  value,  charging  such  amortiza- 
tion as  additional  rental,  as  a  cost  to  operating  burden. 
The  same  modus  operandi  is  applicable  to  machinery  or 
fixtures,  and  must  not  be  confused  with  depreciation. 

Amortization  of  contracts  assumes  its  procedure  from 
the  covenants  agreed  upon.  An  illustration  of  this  is 
found  in  quoting  the  incident  of  an  automobile  manufac- 
turing corporation.  A  sales  manager  had  a  contract  cover- 
ing a  period  of  five  years  to  sell  their  chassis  at  a  stipulated 
price. 

Not  only  was  he  to  receive  a  commission  of  25  per  cent 
for  every  chassis  sold  by  him  or  his  personally  appointed 
agents,  but  also  a  commission  of  25  per  cent  for  every 
chassis  sold  by  the  company  in  the  territory  given  to  the 
sales  manager  by  the  corporation.  At  the  expiration  of  the 
first  year  of  the  contract  the  sales  manager  had  sold  enough 
chassis  to  entitle  him  to  $100,000  in  commissions.  The  cor- 
poration decided  upon  its  own  method  of  representation 
in  the  territory  and  the  sales  manager  agreed  to  cancel  his 
contract  for  a  consideration  of  $250,000,  all  commissions 
reverting  to  the  corporation.  The  check  having  been  paid 
to  the  sales  manager,  the  entry  in  the  General  Ledger  was 
as  follows: 

Dr.    Mr.  Sales  manager's  contract,  $250,000. 

In  order  to  set  up  an  accounting  of  whether  or  not  the 
payment  of  $250,000  was  a  wise  transaction,  and  if  so,  what 
profit  and  benefits  the  company  gained  by  the  purchase  of 
the  contract,  it  was  decided  that  on  all  chassis  sold  in  the 
territory  of  the  contract  the  company  was  to  charge  itself 


292   RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

with  the  commission  of  25  per  cent  it  would  under  the 
covenants  of  the  contract  be  obliged  to  pay  the  sales 
manager.  In  addition  thereto,  it  deducted  from  the  earned 
commission  the  expense  necessary  to  effect  sales,  which  ex- 
pense would  have  to  be  such  expense  as  the  sales  manager 
assumed  out  of  his  own  pocket  to  effect  such  sales. 

The  substance  of  the  entire  transaction  then  was  to 
amortize  the  payment  of  $250,000  by  commissions  earned. 
The  excess  of  $250,000  was  to  show  the  additional  profits 
earned  by  the  corporation  through  the  cancellation  of  the 
contract.  The  ledger  accounts  then  follow: 

Dr.     Amortization  of  sales  manager  contract,  $100,000. 
Cr.     Sales  manager  contract,  $100,000. 
This  accounting,  set  up  to  show  profits  taken  over  by  the 
corporation  in  the  purchase  of  the  sales  manager  contract 
for  $250,000,  covers  orders  in  work-in-process  for  which 
commissions  were  payable. 

Dr.  Sales  expense  for  contract  taken  over  (this  account 
receiving  its  debits  from  expenditures  relating 
thereto  from  the  cash  records  or  other  transac- 
tions). 

In  the  calculations  of  all  amortizations,  allowances  must 
be  made  for  salvage. 

Maintenance  of  Building. —  In  the  proper  application 
of  expenditures  for  the  maintenance  of  the  building,  where 
the  store  owns  its  own  property,  a  distinction  must  be  made 
between  repairs  and  replacements  or  improvements.  Re- 
pairs apply  to  general  wear  and  tear  or  reconstruction  of 
parts  of  the  building  that  have  become  dangerous  to  use. 
The  cost  of  such  repairs  are  a  direct  charge  to  occupancy 
under  the  caption  of  maintenance  of  building.  However, 
the  replacement  of  certain  parts  in  the  form  of  reconstruc- 
tion, of  renovations  that  improve  the  building  or  add  to  the 
life  of  the  building,  are  an  additional  cost  to  be  charged 


BURDEN  293. 

to  th,e  entire  cost  of  the  building.  The  maintenance  ac- 
count should  show  the  details  of  all  expenditures. 
Especially  is  this  required  in  setting  up  schedules  for  in- 
come* tax. 

Depreciation  of  Building. —  The  United  States  Revenue 
Act,  section  234,  sub-section  No.  7,  defines  depreciation  as 
follows : 

"  A  reasonable  allowance  for  the  exhaustion,  wear  and 
tear  of  property  used  in  the  trade  or  business,  including 
a  reasonable  allowance  for  obsolescence." 

A  life  of  twenty  years  is  usually  estimated  for  the  ordi- 
nary building  occupied  by  a  department  store.  Thus,  a. 
depreciation  of  5  per  cent  on  the  amount  paid  for  the  build- 
ing may  be  charged  off  as  depreciation,  and  a  reserve  set 
up,  to  be  known  as  "  RESERVE  FOR  BUILDING  DEPRECIA- 
TION." 

The  value  to  be  taken  into  consideration  is  the  actual 
money  paid  for  the  building,  and  not  its  market  value.  In. 
fact,  the  market  value  of  buildings  should  never  appear 
upon  the  balance  sheet  of  a  statement,  but  in  a  footnote 
the  market  value  may  be  stated. 

The  depreciation  charged  off  at  the  rate  of  5  per  cent  per 
annum,  subdivided  into  twelve  parts,  becomes  an  additional 
cost  to  occupancy. 

There  are  occasions  where  an  organization  becomes  the 
lessee  of  a  building  for  a  number  of  years.  It  is  obliged 
to  make  certain  repairs  to  the  building  in  order  to  make  it. 
suitable  for  business.  In  such  instances,  an  equal  distribu- 
tion for  the  construction  of  the  building  should  be  set  up 
by  carrying  as  an  asset  the  improvements  made  and  by- 
writing  off  periodically,  as  an  additional  cost  to  occupancy, 
moneys  which  represent  the  outlay  for  the  improvements 
of  the  building.  This  is  a  very  common  occurrence,  yet 
organizations  have  charged  the  cost  for  improvements  to 
leaseholds  during  the  period  of  one  year,  which  is  inconsist- 
ent with  good  accounting. 


294  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

Watchmen  Service. —  Another  item  entering  into  the 
cost  of  occupancy  is  that  of  ' '  Watchmen  services. ' '  Under 
this  heading  come  outside  protection  by  the  means  of  cor- 
porations formed  for  the  purpose  of  patrol,  the  police  de- 
partment of  the  municipality,  and  such  watchmen  ser- 
vices as  may  be  engaged  by  the  store.  All  these  become  a 
part  of  the  cost  of  occupancy. 

A  differentiation  must  be  made  between  watchmen  ser- 
vices in  doorways  where  packages  or  articles  come  in  or 
out  of  the  building,  and  watchmen  services  for  the 
protection  of  the  building.  Watchmen  services  denoting 
protection  are  to  be  charged  to  occupancy,  whereas  all  other 
watchmen  services  are  an  indirect  charge  to  operating  bur- 
den, applicable  to  that  particular  department  in  which  the 
watchmen  service  is  rendered. 

Distribution  of  Bent  to  Departments. —  A  fallacy  in 
most  accounting  methods  which,  it  is  regrettable  to  say,  is 
advocated  by  some  accountants,  is  the  distribution  of  rent 
on  the  basis  of  sales.  How  ridiculous  this  really  is  can  be 
seen  by  comparing  any  department,  whose  merchandise  is 
such  that  a  considerable  amount  of  floor  space  is  required, 
with  that  of  a  department  utilizing  a  very  small  space  and 
doing  a  large  volume  of  business.  This  distribution  must 
of  necessity  produce  an  unequitable  charge  to  departmen- 
tal burden. 

The  volume  of  store  space  must  be  analyzed  carefully. 
The  basement  store  may  be  worth  but  10  per  cent  of  the 
total  occupancy  charge,  or  the  main  floor  may  be  such  that 
a  50  per  cent  rental  charge  of  the  entire  occupancy  burden 
is  applicable  to  the  floor. 

The  store  in  any  community  must  decide  its  own  value. 
The  lowest  cost  is  the  basement  store ;  the  main  floor  is  the 
highest  charge,  and  the  cost  of  the  upper  floor  depends 
upon  the  merchandise  and  its  value  in  the  community. 

The  monthly  value  per  square  foot  of  space  is  to  be  de- 


BURDEN  295 

termined.     The  departments  are  measured  under  schedule. 
Space  at  a  rate  per  square  foot  of  space  is  chargeable  to 
the  floor  for  occupancy  distributed. 
The  problem  is  solved  as  follows : 

Dept.     (number  of  square  ft.)  1 

. X 

Total  floor  space  (sq.  ft.)  %  of  occupancy  value 

Month 's  occupancy  cost 

X  '• =  Department  Occupancy 

1 

If  the  floors  are  of  extensive  proportions,  and  the  front 
part  of  the  store  represents  a  greater  value  than  the  rear 
of  the  floor,  it  should  be  divided  into  sections,  showing  the 
percentage  value  of  each  section  of  the  allotted  percentage 
value  of  the  floor  occupancy  cost. 

It  is  recommendatory  to  employ  cost  accounting  segre- 
gations and  burden  applications  to  departmental  occupancy 
distribution,  when  space  takes  on  extensive  proportions  and 
where  more  than  the  ordinary  number  of  departments  are 
employed. 

Receiving. —  The  receiving  department  is  not  only  a 
department  that  means  a  section  of  the  building  in  which 
merchandise  is  received  from  vendors,  from  whom  the  store 
has  made  purchases.  It  is  more  than  this.  In  this  partic- 
ular department  another  section  is  established  in  which  all 
merchandise  received  is  sent  to  a  sub-department,  known  as 
a  marking  department. 

This  marking  department  is  a  subsidiary  to  the  receiving 
room,  where  copies  of  all  orders  placed  with  manufacturers, 
wholesalers,  jobbers  and  exporters  are  kept.  From  these 
orders  and  invoices,  the  marking  department  will  mark  all 
merchandise,  giving  the  department  number,  manufac- 
turer's number  or  style  number,  selling  price,  such  mark- 
ings on  price  tickets  as  may  be  consistent  with  the  store's 


296  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

policy,  or  the  entire  system  in  which  an  organization  con- 
ducts its  affairs,  to  conform  with  its  merchandising  records. 

The  number  of  co workers  in  this  marking  department 
depends  upon  the  volume  of  business  conducted  by  the 
organization.  The  efficiency  of  the  receiving  department 
must  not  be  abated  in  the  least  iota.  Here,  more  than  in 
any  other  section  of  the  store,  must  efficiency  be  paramount. 
For  the  payment  of  all  moneys  is  promulgated  from  this 
department.  Its  records  must  be  such  that  any  item 
marked  for  payment  in  the  general  office  can  readily  be 
traced  to  the  receiving  department,  to  assure  the  authentic- 
ity of  making  a  payment  voucher  covering  either  the  ex- 
penditure for  merchandise  or  burden. 

Unlike  that  of  the  manufacturing  organization,  where 
freight  and  expressage  become  a  part  of  the  cost,  a  retail 
establishment  will  charge  freight  and  express  to  receiving 
burden,  and  not  add  such  expenditure  to  the  cost  of  mer- 
chandise. The  author  will  not  for  a  moment  argue  that 
freight  and  express  are  not  an  additional  cost  to  merchan- 
dise, but  exception  is  taken  to  the  application  of  this  by 
buyers  in  marking  the  retail  price  of  merchandise  on  the 
price  paid  for  the  commodity.  The  buyers,  however,  must 
keep  in  mind  the  percentage  of  burden  charged  to  their 
departments  for  operations.  It  can  readily  be  seen  that 
in  the  busy  store  the  cost  of  transportation  is  readily  lost 
in  the  shuffle,  and  the  buyer  does  not  take  cognizance  of 
what  the  cost  of  transportation  may  be.  The  marking  of 
the  merchandise  will  take  on  a  certain  percentage.  This 
percentage  of  mark  up  must  give  the  profit  to  the  depart- 
ment, cover  the  overhead,  and  allow  for  mark  downs  to 
close  the  season  at  a  stipulated  percentage  of  mark  up. 

It  is  conceded  that  an  article  whose  prime  cost  is  $20 
and  the  transportation  charges  on  which  are  $1,  costs  $21. 
To  argue  the  matter  further,  the  percentage  of  operating 
burden  is  25  per  cent.  For  example,  exclusive  of  transpor- 


BURDEN  297 

tation  charges,  and  should  it  be  possible  to  figure  operating 
burden  on  cost,  25  per  cent  becomes  an  additional  cost  to 
the  commodity,  making  such  commodity  cost  $26  instead 
of  $20.  But,  as  previously  mentioned,  the  burden  of  any 
description  whatever  is  entirely  eliminated  from  its  appli- 
cation to  cost,  and  receiving  becomes  as  much  a  burden  as 
occupancy,  administration,  or  any  other  factor  coming  into 
the  cost  of  operation. 

It  has  been  customary  in  many  trades  where  a  store  pays 
transportation  charges,  whether  by  freight,  express,  motor 
trucks,  or  in  any  other  form,  that  the  vendor  assumes  the 
charge.  "Where  the  vendor  does  not  assume  the  charge, 
the  retail  organization  will  make  a  deduction  for  such 
transportation  charges  in  making  remittances  for  the  pur- 
chase. This  practice  has  been  in  effect  for  centuries  and  is 
gradually  diminishing.  The  practice  has  become  so  exten- 
sive that  organizations  have  been  set  up  by  the  manufac- 
turers of  various  commodities  organizing  against  this  un- 
fair advantage  which  the  retailer  takes  upon  the  manu- 
facturer. 

Receiving  Salaries. —  An  additional  cost  in  conducting 
a  receiving  department,  and  perhaps  a  greater  cost  in  size 
than  transportation  charges,  is  salaries.  The  customary 
cost  of  salaries  for  the  receiving  department  averages  two- 
tenths  of  one  per  cent.  This  average  percentage  is  an 
excellent  guide,  and  has  been  found  by  the  author  to  be 
almost  the  standard  rate  for  every  large  store  throughout 
America. 

Receiving  Supplies. —  The  supplies  used  by  the  Receiv- 
ing Department  must  receive  careful  attention.  These 
charges  are  usually  for  receiving  boxes,  stationery  of  every 
description,  and  conveyances  —  usually  in  the  form  of 
trucks  to  convey  merchandise  from  the  receiving  depart- 
ment to  the  merchandising  department  —  and  other  sup- 
plies that  are  necessary  to  conduct  a  receiving  room  prop- 
erly. 


298  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

Cognizance  must  be  taken  of  the  fact  that  price  tickets 
hung  on  merchandise  or  attached  thereto  are  not  a  supply 
for  receiving.  Such  price  tickets  come  under  the  caption 
of  supplies  that  are  chargeable  to  the  burden  of  the  depart- 
ment to  which  the  commodity  is  attached,  they  are  to  be 
used  in  the  department  selling  that  particular  classification 
of  merchandise. 

It  may  be  opportune  to  mention  that  the  supply  depart- 
ment, in  distributing  supplies,  will  do  so  upon  requisition. 
Where  the  receiving  department  requires  a  certain  quan- 
tity of  price  tickets  for  a  particular  class  of  merchandise, 
the  department  for  which  the  price  tickets  will  be  used  is 
specified  on  the  supply  requisition.  The  supply  depart- 
ment will  charge  the  department  which  will  put  the  tickets 
in  use,  whether  attached  by  the  receiving  department  or 
not.  At  the  month's  end  it  will  pass  such  charges  into  the 
general  office,  which  will  make  a  distribution  for  supplies 
to  the  departments  in  which  it  was  utilized.  Thus  an 
equitable  distribution  for  supplies  is  given. 

Receiving  Demurrage. —  It  very  often  occurs  that  mer- 
chandise is  received  from  a  vendor,  when  the  vendor  did 
not  properly  execute  transportation  papers,  with  the 
result  that  the  merchandise  was  obliged  to  go  to  the  storage 
houses,  or'  to  be  stored  in  the  store's  own  storage  or  receiv- 
ing room  pending  adjustment  or  tracing  of  transportation 
details  or  documents.  This  entails  an  additional  cost  for 
the  receiving  of  the  merchandise,  and  must  be  set  up  so 
that  the  cost  will  be  charged  to  the  receiving  department. 
At  the  same  time  this  must  be  the  means  of  knowing  how 
often  the  demurrage  occurs  so  that  better  facilities  will  be 
instituted,  eliminating  such  additional  expense.  The  fur- 
ther away  the  store  is  from  the  merchandise  markets,  the 
greater  the  contingency  for  demurrage. 

Vehicles. —  A  store  will,  in  addition  to  the  delivery 
vehicles,  maintain  vehicles  for  the  receiving  of  merchandise 


BURDEN  299 

only.  These  vehicles  are  used  to  receive  merchandise  from 
docks,  storage  houses,  or  from  any  point  whatever,  in  order 
to  fetch  merchandise  into  the  receiving  department.  The 
maintenance  of  such  vehicles  becomes  a  direct  charge  to 
receiving,  along  with  chauffeurs'  or  drivers'  salaries,  ga- 
rage expense  or,  where  houses  are  used,  the  up-keep  of  horses, 
rent,  fodder,  harnesses,  c*c.  Where  motor  trucks  are  used, 
new  parts,  chauffeurs'  salaries,  accident  insurance,  or  all 
classification  of  insurance  applied,  and  depreciation  of  the 
equipment  become  an  additonial  charge  to  the  receiving 
department. 

Transportation  Insurances. —  It  is  customary  to  have  a 
certain  amount  of  insurance  in  forms  covering  the  trans- 
portation of  merchandise  from  various  sections  of  the  coun- 
try to  the  store.  This  insurance,  known  as  ' '  floater, ' '  cov- 
ering fire,  pillage,  or  entire  loss,  is  to  compensate  an  organ- 
ization for  any  losses  sustained  in  the  transportation  of 
merchandise,  which  does  not  protect  the  buyer  in  accord- 
ance with  the  Interstate  Commerce  Laws.  The  cost  of  such 
insurance  is  chargeable  to  the  receiving  department.  The 
loss  of  merchandise  above  the  value  recovered  by  insurance 
it  written  up  in  a  loss  account,  detailed. 

Distribution  of  Receiving. —  In  order  that  an  equitable 
distribution  may  be  made  to  the  various  departments  con- 
ducted by  the  store  for  receiving  costs,  the  total  amount  of 
receiving  each  month  is  distributed  and  charged  to  the 
diverse  departments  on  the  basis  of  merchandise  purchased. 

Delivery. —  The  extensive  cost  of  maintaining  delivery 
must  be  in  keeping  with  the  store.  Every  means  possible 
in  modern  merchandising  has  been  tried  in  order  to  reduce 
the  cost  of  maintaining  this  department. 

Inducements  of  every  description  are  promulgated  to 
have  the  customer  take  the  merchandise  with  her.  In  the 
latter  part  of  1918,  a  few  stores  of  prominence  made  it  a 
fixed  rule  that  with  all  merchandise  that  was  sent,  a  cus- 


300   RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

tomer  was  obliged  to  pay  a  charge  of  10  cents  for  each, 
package.  Though  this  charge  of  10  cents  is  very  small, 
•customers  have  taken  exception  to  the  charge.  But  having 
become  accustomed  to  paying  this  charge,  they  prefer  to 
have  the  merchandise  sent  rather  than  to  carry  it  home 
with  them.  Ten  cents  by  no  means  covers  the  cost  of 
delivering  the  package.  In  the  years  of  1910  or  1911 
a  package  could  be  delivered  for  as  low  at  7y2  cents,  and 
this  cost  seldom  exceeded  15  cents.  At  the  present  time 
the  cost  for  delivering  an  ordinary  package  will  run  as  high 
as  50  cents,  with  an  average  of  35  cents.  This  does  not 
include  house  furnishings,  furniture,  floor  coverings,  pianos 
or  heavy  merchandise  coming  in  the  same  category  as  the 
merchandise  just  described.  The  charge  of  10  cents  is  not 
made  for  the  reduction  of  delivery,  but  to  induce  the  cus- 
tomer to  TAKE  PACKAGES  WITH  HER  rather  than  to  have 
them  sent.  This  relieves  the  congestion  in  the  delivery 
department,  and  helps  in  eliminating  the  smaller  packages 
which  are  always  more  expensive  than  the  larger  ones. 

Vehicles. — Transportation  vehicles,  whether  motor  or 
horse  power,  cost  a  considerable  amount  for  their  up-keep. 
All  of  this  is  charged  to  the  delivery  department.  Where 
motor  vehicles  or  wagons  are  in  use,  the  cost  of  such  trucks 
is  charged  to  delivery  equipment.  They  are  depreciated 
not  to  cover  a  period  longer  than  three  years,  and  1/36  of 
its  original  cost  is  depreciated  monthly,  where  the  reserve 
is  set  up  for  depreciation,  and  its  debit  charge  is  placed  to 
the  cost  of  Vehicle  Delivery.  In  addition,  chauffeurs' 
salaries,  helpers,  new  parts,  garage  expense,  gas,  general 
up-keep  and  insurance  are  direct  delivery  charges  to 
vehicles. 

Parcel  Post. —  Parcel  post  charges  are  used  where 
packages  are  sent  out  of  the  city  or  out  of  the  city  limits, 
where  the  delivery  department  or  vehicles  do  not  go.  The 
postage  stamps  in  use  have  always  been  a  source  of  annoy- 
ance to  the  management  of  a  retail  organization.  Not  that 


BURDEN  301 

the  honesty  of  any  of  the  eoworkers  in  the  department  has 
been  questioned.  But  regardless  of  how  it  may  be  con- 
trolled, an  opening  for  dishonesty  will  be  apparent.  Or- 
ganizations have  known  parcel  post  charges  to  run  up  to 
considerable  amounts.  To  control  this  by  detailed 
accounting  would  entail  a  greater  cost  than  the  amount  that 
might  be  open  for  unaccounted  postage.  It  is  therefore 
advisable  to  adopt  the  same  methods  as  are  used  in  mail 
order  houses.  Where  a  considerable  number  of  packages 
are  delivered  by  parcel  post,  the  mail  order  houses  will 
make  arrangements  with  the  postmaster  to  use  what  is 
known  as  PRECANCELLED  STAMPS,  thus  insuring  a  greater 
amount  of  security  in  the  proper  handling  of  postage 
stamps  than  could  be  otherwise  obtainable. 

Conveyers. —  The  larger  the  organization,  the  greater 
must  be  the  facilities  for  delivery,  and  efficiency  of  the 
delivery  system  becomes  a  prime  factor.  Various  kinds  of 
chutes  from  all  floors  will  be  erected  so  that  packages  will 
be  sent  readily  to  the  basement,  if  a  delivery  department 
is  situated  in  that  section  of  the  store.  Or,  if  the  delivery 
department  should  be  located  in  one  of  the  upper  floors, 
conveyers  of  various  descriptions  will  be  installed. 

Packages  may  be  collected  by  trucks  at  the  various  wrap- 
ping desks,  or  at  central  points  on  each  floor  by  means  of 
door  trucks.  The  cost  for  the  up-keep  of  the  conveyers, 
trucks,  and  eoworkers  employed  for  fetching  the  merchan- 
dise from  the  department  to  the  delivery  room  is  charged 
as  additional  cost  for  delivery. 

Conveyers  are  very  expensive  installati9ns.  When  a 
conveyer  is  installed,  it  is  originally  charged  to  delivery 
equipment,  and  a  monthly  rate  of  depreciation  of  the  origi- 
nal cost  is  chargeable  to  the  delivery  equipment  to  set  up 
a  proper  cost  for  delivery  charges. 

Delivery  boys  or  messengers  are  employed  in  addition  to 
all  other  delivery  conveyances,  in  order  that  deliveries  may 
be  made  promptly,  giving  the  customer  a  first  grade  of  ser- 


302  EETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

vice.  It  is  the  services  which  a  store  desires  to  render  to 
its  patrons  which  increase  the  delivery  cost.  Carfares 
become  a  factor  when  customers  desire  merchandise  to  be 
delivered  specially,  or  at  a  particular  time.  In  order  that 
these  special  deliveries  are  properly  carried  out,  to  wait  for 
a  particular  time  when  a  store  vehicle  reaches  that  point 
would  become  inconsistent  with  the  service  that  a  store 
desires  to  render  its  patrons.  Special  messengers  are  there- 
fore employed,  and  the  cost  for  delivery  of  these  packages 
by  car,  or  special  messenger,  entails  a  special  cost  for  the 
delivery. 

Salaries. —  The  salaries  paid  to  all  coworkers  in  the 
delivery  department,  whether  they  are  chauffeurs,  drivers 
or  clerks,  become  a  cost  to  the  delivery,  and  is  chargeable 
to  this  department. 

Supplies. —  The  greatest  burden  of  supplies  that  a  sup- 
ply department  has  to  carry  is  that  used  for  wrapping  and 
delivery  purposes.  All  twine,  paper  boxes,  excelsior,  cases, 
crating,  nails,  hardware,  etc.,  used  by  the  delivery  depart- 
ment must  be  charged  to  the  department  where  the  sup- 
plies are  sent.  Such  supplies,  then,  become  a  direct  charge 
to  the  department  in  which  the  supplies  are  delivered. 

Distribution  of  Delivery. —  A  careful  accounting  in 
every  department  is  set  up  to  show  the  number  of  packages 
delivered  to  patrons  from  the  various  departments.  This 
is  obtained  from  the  address  label  of  the  sales  check,  usu- 
ally pasted  on  the  package  or  hung  on  a  manilla  card, 
which  card  is  attached  to  the  merchandise  to  be  delivered. 
At  the  end  of  the  period,  which  is  one  month,  the  closing 
of  the  month  will  show  the  exact  expenditure  for  the 
up-keep  of  the  delivery  department.  The  merchandising 
departments  are  then  charged  with  the  number  of  pack- 
ages that  were  delivered  from  their  department  at  the  rate 
per  package  for  delivery  charges  for  each  month.  The 
ordinary  cost  accounting  for  burden  distribution  is 
applicable. 


CHAPTER  XIII 

PROFIT  AND  LOSS 

Buying  Burden. —  The  burden  of  buying  is  an  exten- 
sive one.  Its  size  is  dependent  upon  the  volume  of  busi- 
ness a  store  transacts.  The  salary  paid  to  a  buyer  does  not 
signify  that  such  salary  is  the  only  buying  expense  of  the 
store,  but  all  other  expenses  that  arise  through  the  buying 
organization  must  be  added  to  salaries  in  order  to  have  a 
complete  knowledge  of  what  the  total  expenditure  for  buy- 
ing may  be.  These  expenses  are  a  direct  charge  to  the 
department  in  which  the  expense  occurs,  with  the -excep- 
tions found  in  the  more  detailed  description  that  follows. 

Buyers'  Salaries. —  The  buyer  of  a  department  store 
may  buy  for  one  department  or  many.  In  the  larger  or- 
ganizations, the  buyer  will  purchase  for  one  department 
only.  The  salary  received  by  the  buyer  is  therefore  a 
direct  charge  to  the  department  of  which  he  is  buyer  and 
manager.  Where  a  buyer  purchases  for  more  than  one 
department,  his  salary  should  be  distributed  among  the 
various  departments  on  the  basis  of  merchandise  purchased. 
All  bonuses  or  gifts,  prizes  and  extra  remunerations  are 
chargeable  in  the  same  manner  as  salary,  depending  upon 
the  circumstances  for  which  such  additional  payments  have 
been  made,  reflecting  upon  the  departments  which  are 
responsible  for  such  payment. 

Traveling  Fares. —  Buyers'  traveling  expenses  refer  to 
expenses  incurred  while  they  are  on  board  trains  or  ships. 
It  may  be  in  traveling  to  other  cities,  or  to  foreign  coun- 
tries. This  expense  is  segregated  from  living  expenses 
while  traveling,  in  as  much  as  it  is  necessary  for  the  store 
to  know  exactly  the  expenditures  caused  by  traveling  to 
other  cities  for  the  purchase  of  the  store's  merchandise. 

303 


304  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

Traveling  Expenses. —  Traveling  expense  covers  hotel 
bills  whether  in  their  own  country  or  in  a  foreign  country. 
It  is  customary  for  every  department  store  to  allow  a 
buyer,  in  addition  to  their  own  railroad  or  steamer  fare, 
from  $4  to  $10  a  day,  though  the  greater  number  of  stores 
throughout  the  country  allow  this  expense  as  $5  a  day. 
This  does  not  refer  to  buyers  of  such  stores  as  are  located 
in  New  York  city,  where  the  greater  market  for  the  depart- 
ment store  merchandise  exists.  Buyers  connected  with 
New  York  stores  are  allowed  street  carfares  and  taxi-cab 
charges,  but  usually  these  are  not  expected  to  be  charged 
up  by  the  buyer.  Traveling  to  the  Orient,  or  Europe,  in 
search  of  particular  merchandise  may  require  an  additional 
cost  for  traveling.  This  expenditure,  being  entirely  out  of 
the  ordinary,  an  exception  is  made  to  the  entire  practice 
of  mark  up  heretofore  described.  For  reasons  of  the  tre- 
mendous cost  of  importing  foreign  merchandise  and  because 
its  usefulness  may  only  be  utilized  by  that  portion  of 
society  capable  of  paying  liberally  for  their  requirements, 
the  cost  of  merchandise  will  be  determined  prior  to  setting 
the  mark  up.  These  will  be  as  follows: 

Prime  cost  of  merchandise. 

Commissionaire  service  abroad.    . 
Expressage  abroad. 
Packing  abroad. 

Tax  abroad. 

Consular  invoice  cost. 

Ocean  transportation. 

Marine  insurance  of  all  descriptions. 

Duty. 

American  drayage. 

Foreign  traveling  expenses. 

Allowance  for  wear  and  tear. 

And  finally  added  to  the  above  items,  the  mark  up 
for  retailing. 


ALTERATION  DEPARTMENT  305 

Out  of  Town  Offices. —  Most  stores  are  accustomed  to 
having  a  New  York  buying  office.  Sometimes  an  office  also 
exists  in  other  cities.  Where  a  store  does  not  maintain  an 
office  of  its  own,  it  usually  is  connected  with  some  other 
buying  organization,  for  which  service  a  payment  is  made 
from  $500  a  year  upward. 

Where  offices  are  maintained  in  European  capitals,  such 
as  London  and  Paris,  in  addition  to  the  cost  of  the  office, 
a  commissioniere,  who  assists  in  the  buying  of  foreign  mer- 
chandise, is  maintained  on  a  percentage  basis.  All  of  this 
means  an  additional  cost  to  maintain  the  buying  organiza- 
tion. It  may  be  argued  that  commissions  paid  to  a  com- 
missioniere are  an  additional  cost  to  merchandise.  It  is 
admitted  that  such  is  the  fact,  but  this  item  should  be 
segregated  from  the  direct  cost  of  the  merchandise  to  an 
indirect  cost,  in  as  much  as,  if  the  buyer  was  over  at  Paris 
and  he  were  doing  the  buying,  it  would  not  be  necessary  to 
employ  a  commissioniere.  Or,  if  the  buyer  were  thoroughly 
acquainted  with  the  various  conditions  in  Paris,  he  would 
not  be  obliged  to  employ  a  commissioniere  to  assist  him. 

In  importing,  a  charge  in  the  European  countries  is  made 
for  every  move  of  merchandise,  such  as  packing,  crating, 
drayage,  consular  invoices,  marine  insurance,  etc.  These 
charges,  as  enumerated,  are  an  additional  cost  to  the  mer- 
chandise, and  not  to  the  maintenance  of  a  buying  office. 

The  maintenance  of  these  offices  in  our  own  country  or 
any  foreign  country  is  a  direct  benefit  gained  by  all  the 
departments.  It  is  therefore  reasonable  to  assume  that 
each  department,  which  gains  the  benefit  of  this  office, 
should  bear  its  proportional  cost.  Those  departments 
importing  merchandise  alone  must  stand  the  cost  of  main- 
taining offices.  Other  departments  which  receive  a  direct 
benefit  of  maintaining  offices  in  other  cities  receive  their 
share  of  such  burden  on  the  distribution  of  merchandise 
purchased. 


306  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

Where  out-of-town  offices  maintain  an  office  staff  for 
clerical  work,  their  salaries,  supplies,  and  general  up-keep 
should  be  added  to  the  cost  kept  under  separate  captions 
in  the  general  ledger. 

Selling  Burden. —  The  cost  of  selling  merchandise  in 
the  department  store  does  not  rest  alone  on  the  salaries  paid 
to  the  sales  help,  but  on  every  element  that  touches  directly 
upon  the  actual  sale  of  the  merchandise.  These  are  divided 
into  two  classes: 

One  is  direct  selling,  and  the  other  advertising. 

Under  direct  selling,  we  begin  with  the  caption  of  sales 
force. 

Sales  Force. —  All  coworkers,  who  are  directly  engaged 
in  selling  merchandise  and  are  generally  known  as  sales 
workers  or  sales  people,  are  a  direct  charge  to  selling. 
Their  salaries  alone  should  be  set  up  separately  from  any 
other  payment  that  may  be  made  to  them.  The  distribu- 
tion of  their  salaries  is  direct  to  the  department  in  which 
they  are  employed.  It  very  often  happens,  and  in  fact  it 
is  almost  a  daily  occurrence  in  stores,  to  transfer  a  sales 
clerk  from  one  department  to  another  for  a  few  hours  or 
for  a  day.  When  this  takes  place,  a  coworker's  transfer 
record  is  made  by  the  floor  manager,  who  will  send  such 
transfer  to  the  paymaster,  or  employment  superintendent. 
He,  in  turn,  will  credit  the  salary  that  the  clerk  receives  to 
the  department  in  which  he  is  employed,  and  will  charge 
the  department  to  which  he  has  been  transferred  either  for 
the  number  of  hours  employed  in  the  department  trans- 
ferred, or  for  the  entire  day,  if  the  clerk  has  been  so 
employed. 

Contingent  Sales  Force. —  Almost  all  retail  establish- 
ments have  a  contingent  selling  force.  This  selling  force 
is  not  employed  for  the  entire  week,  but  may  perform  its 
•work  on  Saturdays  only,  or  for  two  or  three  days  of  each 
week.  This  contingent  selling  help  is  distributed  to  vari- 


PROFIT  AND  LOSS  307 

ous  departments  through  the  superintendent's  office,  which 
so  notifies  the  paymaster's  office,  which  checks  up  its 
salaries  by  the  time  put  in  by  such  help.  It  is  segregated 
from  all  other  selling  help,  and  very  often  figures  will 
assist  in  determining  the  necessary  selling  force  required 
for  the  various  departments. 

Contingent  Stock  Help. —  In  addition  to  stock  boys  and 
stock  girls  employed  to  take  care  of  stocks  in  various  de- 
partments—  usually  in  furniture,  floor  coverings,  house 
furnishings,  and  wearing  apparel  —  additional  help  is  often 
engaged  after  school  hours,  usually  for  Saturdays  and,  in 
some  cities,  on  Mondays,  and  is  known  as  contingent  stock 
boys  and  stock  girls.  They,  to  a  great  extent,  assist  the 
selling  force  in  selling  the  merchandise  by  the  proper  care 
of  the  stocks  and  doing  errands  that  are  necessary  as 
assistance  in  the  selling.  They,  therefore,  take  on  the  func- 
tions of  selling  assistants  and  are  a  direct  charge  to  selling 
expense,  under  \_heir  own  ledger  caption. 

P.  M.  Salaries. —  P.  M.  salaries  are  salaries  paid  to  all 
sales  help  in  addition  to  their  regular  salaries.  The  P.  M. 
is  a  premium  paid  for  performing  extra  services  and  sell- 
ing merchandise  or  old  stock  above  a  stipulated  price. 
P.  M.'s  are  known  in  some  trades  as  SPIFFS.  The  selling 
of  merchandise  above  the  marked  price  is  the  old  form  of 
P.  M.'s,  originated  many  years  ago  by  unscrupulous  mer- 
chants. They  would,  to  use  the  vernacular,  look  the  cus- 
tomer over  for  an  "  E.  Z.  mark,"  and  if  found  to  be  in  the 
category  of  P.  T.  Barnum's  description  of  a  "  sucker," 
they  would  argue  on  various  prices  until  the  article  was 
sold  or  the  sale  lost.  The  P.  M.,  as  practiced  by  honest 
merchants,  is  the  payment  to  the  sales  person  of  twenty- 
five  cents  on  the  dollar  for  all  higher  priced  merchandise 
sold  above  a  stipulated  price.  Sometimes  a  flat  50  cents 
for  every  $1  above  a  stipulated  price  is  paid. 

In  the  opinion  of  the  author,  P.  M.  's  should  be  abolished 


308  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

in  every  form.  The  educational  department  should  care- 
fully instruct  sales  help  in  salesmanship  so  that  special 
inducement  to  sell  stocks  that  are  higher  priced  or  unde- 
sirable is  not  necessary  and  no  discrimination  is  made. 

Advertising. —  A  very  common  error  made  in  retail 
accounting  is  to  charge  to  advertising  moneys  paid  to  news- 
papers or  circulars  for  direct  advertising  matter,  terming 
such  cost  advertising  expense.  To  set  up  the  real  cost  of 
advertising,  every  element  must  be  taken  into  consideration. 
That  includes  salaries  for  advertising  managers,  his  assist- 
ants, sign  writers,  window  trimming,  interior  decorations, 
electrotypers,  etc.  The  combined  expense  is  the  actual  ex- 
pense incurred  for  advertising. 

Advertising  Salaries. —  All  advertising  must  have  its 
beginning.  While  the  thought  may  come  from  almost  any 
center  of  the  establishment,  publicity  is  established 
through  the  advertising  department.  This  department 
generally  consists  of  the  advertising  manager,  lay-out 
clerks,  artists  and  stenographers.  All  salaries  paid  to  this 
class  of  help  are  known  as  Advertising  Salaries,  and  should 
be  charged  under  a  ledger  heading  of  their  own. 

Newspaper  Advertising. —  The  next  in  line  to  advertis- 
ing salaries  is  the  newspaper  medium,  which  is  the  great- 
est of  all  advertising  expenditures.  While  the  accounts  of 
the  various  papers  are  set  up  in  the  Burden  Ledger,  the 
monthly  sum  total  is  written  up  in  the  General  Ledger 
under  the  account  known  as  Newspaper  Advertising.  It 
is  very  important  that  this  account  be  kept  carefully. 
Newspaper  advertising  costs  vary  from  1%  per  cent  to  3 
per  cent  for  department  stores;  for  specialty  shops,  from 
2!/2  to  5  per  cent.  Newspaper  advertising  in  excess  of  this 
amount  can  only  be  accounted  for  through  special  adver- 
tising or  the  neglect  of  the  proper  control  of  an  organiza- 
tion. 

The  distribution  of  the  cost  of  newspaper  advertising  is 


PROFIT  AXD  LOSS  309 

a  direct  charge  according  to  the  space  used  by  the  various 
departments.  In  addition  thereto,  all  other  advertising 
matter  is  distributed  to  each  department  on  the  basis  of  its 
sales.  It  may  be  argued  that  a  department  which  does  not 
advertise  at  all  for  an  entire  month  should  not  bear  the 
burden  of  any  part  of  the  advertising  costs,  for  the  reason 
that  it  has  in  no  way,  shape  or  manner,  either  by  news- 
paper, pamphlet  or  even  window  display,  participated  in 
any  direct  newspaper  for  advertising  matter. 

It  is  not  logical  that  because  a  department  did  not  par- 
ticipate in  the  expenditure,  it  should  not  bear  the  burden 
of  any  charge.  It  must  be  admitted,  in  view  of  the  fact 
that  all  other  departments,  or  a  great  number  of  other 
departments,  have  borne  a  considerable  amount  of  the 
expense  of  advertising  and  brought  customers  into  the 
store,  that  a  department  which  has  not  advertised  has 
materially  increased  its  sales,  or  run  up  a  fair  volume  of 
business  through  this  advertising.  That  department,  even 
though  it  did  not  advertise,  indirectly  gained  the  benefits 
of  the  expenditure  made  by  the  department  that  did  adver- 
tise. This  being  the  fact,  it  is  but  equitable  that  the  de- 
partment not  advertising  should  at  least  bear  the  expense 
of  part  of  the  indirect  advertising  matter,  but  of  no  part 
of  the  direct  advertising  matter  which  would  be  in  the 
form  of  newspaper  advertisements,  pamphlets  or  hand  bills. 

Electrotypes. —  With  few  exceptions,  all  retail  estab- 
lishments will  use  an  electrotype  reproducing  the  particu- 
lar class  of  merchandise  that  is  being  advertised.  The 
artist  will  make  a  sketch  depicting  the  advertised  subject, 
which  will  be  set  up  in  the  form  of  an  electrotype,  cut  or 
matrix,  which  is  used  by  the  typesetter  in  setting  the  type 
for  the  advertising  matter.  It  may  be  imagined  that  the 
cuts,  though  inexpensive,  surprisingly  increase  the  total 
amount  of  expenditure.  Good  advertising  is  not  an  ex- 
pense, but  one  of  the  principles  of  turnover.  Though  it 


310  KETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

seems  that  no  merchant  would  make  an  expenditure  unless 
economic  conditions  and  business  warranted  such  expendi- 
ture, still  it  is  often  found  that  cuts  and  matrices  are 
abused  in  their  use. 

Signs  and  Posters. —  One  of  the  superstitions  of  a 
department  store  is  that  of  believing  in  signs.  This  should 
not  be  interpreted  as  meaning  that  the  entire  establishment 
should  be  literally  placarded  by  massive  signs  projecting 
from  ceilings  or  walls.  Signs  are  rather  placed  on  tables 
and  counters  to  convey  thought  to  the  mind  of  the  patron 
and  to  act  in  the  capacity  of  a  silent  salesman.  These 
signs  and  posters  are  written  upon  cardboard,  oilcloth, 
wood,  or  anything  conceivable  that  will  be  pleasing  to  the 
eye  and  convey  a  thought  to  inspire  desire.  They  may  be 
in  show  windows.  They  may  be  represented  by  a  sign 
mentioning  the  firm's  name  on  the  outside  of  the  building, 
or  by  a  pennant  projecting  from  one  of  the  windows  of  the 
building  or  upon  its  roof.  This  is  also  advertising,  and 
should  be  charged  accordingly  under ,  a  separate  caption 
upon  the  General  Ledger. 

Sign  Writer's  Salaries. —  Salaries  paid  to  the  various 
sign  writers  should  be  charged  up  to  a  special  heading,  and 
are  an  additional  cost  to  advertising.  Paints,  brushes  and 
material  of  every  description  are  an  advertising  supply 
cost. 

Window  Decorators. —  "Window  trimming  constitutes 
quite  an  expenditure,  and  perhaps  as  great  an  advertise- 
ment as  any  advertising  store  matter.  A  considerable  ex- 
pense is  gone  to  in  order  to  make  the  windows  very  attrac- 
tive by  means  of  backgrounds,  paintings,  floor  coverings, 
window  display  fixtures,  lights  and  supplies,  velours,  vel- 
vets, cretonnes,  etc.  These,  along  with  the  salaries  paid 
to  window  trimmers,  are  chargeable  under  two  separate 
headings.  The  one  is  known  as  window  decorations,  or 
window  trimming,  and  the  other  as  window  trimmer's  sala- 


PROFIT  AND  LOSS  311 

ries.  Segregation  being  necessary  for  detailed  information 
for  cost  record. 

Depending  upon  the  quantity  of  window  space,  the  de- 
partment is  charged  with  the  cost  of  the  space  it  occupies 
by  the  number  of  days  of  each  month.  Where  all  display 
windows  are  on  one  street,  with  an  even  depth,  and  where 
only  one  department  is  at  any  time  advertised  in  the  win- 
dow, the  rate  is  an  equal  one,  depending  upon  the  total 
cost  of  the  month.  However,  where  a  window  has  a  con- 
siderable depth,  and. two  or  three  departments  are  adver^ 
tised  in  one  window,  it  must  be  remembered  that  that  class 
of  merchandise  nearest  to  the  street  is  charged  with  the 
greater  cost,  and  the  department  placed  in  the  rear  of  the 
window,  or  on  the  side  windows,  facing  the  vestibule,  is 
charged  with  the  lesser  cost. 

Lights,  window  cleaning,  window  plate  glass  insurance, 
are  additional  costs. 

Advertising  Supplies. —  A  considerable  amount  of  sup- 
plies is  used  in  the  advertising  department.  These  consist 
of  paper,  crayon,  pencils,  inks,  various  descriptions  of 
paper,  and  a  host  of  minor  supplies,  all  of  which  become 
necessary  properly  to  conduct  the  advertising  department. 
These  necessary  requisites,  indirectly,  are  an  additional 
cost  to  advertising,  and  should  be  so  charged. 

Novelty  Advertising. —  There  are  various  forms  of 
novelties  which  are  distributed  amongst  the  patrons  of  an 
establishment.  They  may  be  souvenirs  of  a  suit  depart- 
ment, a  house  furnishing  department,  or  small  play  trin- 
kets, booklets,  balloons  or  toys  given  to  children  visiting 
the  "  kiddies'  "  department,  better  known  infant's  wear, 
children's  clothing,  little  girl's  apparel,  where  the  sizes 
run  from  2  to  6  and  6  to  14.  These  novelties  are  purely 
and  simply  an  advertising  proposition.  As  such  they  are 
to  be  charged  to  advertising.  The  department  that  dis- 
tributes these  novelties  is  directly  charged  with  the  adver- 
tising matter. 


312  EETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

Interior  Decorations. —  Another  form  of  advertising  is 
that  of  interior  decorations.  Considerable  expenditures 
are  made  in  making  the  interiors  of  various  departments 
attractive.  This  does  not  refer  to  merchandise  which  is  set 
up  in  an  attractive  form  on  counters,  cases  or  shelvings  to 
attract  the  eye,  but  to  decorations  on  walls,  pillars,  stair- 
cases and  the  like.  There  can  be  no  specific  items  men- 
tioned of  which  the  interior  decorations  might  consist,  but 
it  will  be  understood  that  with  regard  to  any  decorations 
made  in  the  interior  of  the  store  by  the  display  manager  or 
his  assistants,  the  time  put  in  by  such  help  and  the  expen- 
diture for  decorations  is  a  charge  to  indirect  advertising, 
which  is  pro-rated  on  sales  to  the  various  departments  of 
which  the  store  is  made  up. 

Miscellaneous  Advertising-. —  The  term  ' '  Miscellane- 
ous "  for  a  ledger  account  should  be  avoided  wherever  pos- 
sible. It  does  not  convey  any  specific  meaning,  and  as  such 
it  is  difficult  to  convey  a  thought  that  might  be  of  material 
benefit  for  the  management  of  an  organization. 

In  using  the  term  Miscellaneous  Advertising,  reference 
is  made  to  magazines,  programmes,  cinematograph  slides, 
and  donations  that  take  on  the  aspect  of  advertising  rather 
than  of  charitable  donations.  Where  the  store  advertises 
as  a  whole,  the  cost  of  all  these  should  be  pro-rated  on  the 
basis  of  the  sales  to  all  departments. 

Indirect  Burden. —  The  greatest  burden  of  all  store 
expenses  is  that  which  comes  under  the  caption  of  Indirect 
Burden.  The  interpretation  of  this  classification  of  burden 
is  expense  that  cannot  be  charged  directly  to  the  cost  of 
conducting  any  of  the  merchandising  departments,  or 
operating  departments.  It  also  consists  of  non-selling  ex- 
penditures, salaries,  and  non-productive  costs.  Unproduc- 
tive costs  as  interpreted  in  retailing  are  costs  that  do  not 
enter  into  either  buying  or  selling  of  merchandise,  and  do 
not  apply  directly  to  administration. 


PROFIT  AND  LOSS  313 

Help  Wanted  Advertising. —  Help  wanted  advertising 
is  quite  a  costly  item,  and  it  can  only  be  reduced  through 
a  lower  turnover  of  help.  In  this  respect,  the  interests  of 
the  coworkers  must  be  aroused  by  making  their  work  of  a 
fascinating  nature.  Bonus  plans  have  .been  adopted  in 
many  stores.  In  those  organizations  where  bonus  plans 
have  not  been  put  into  effect,  it  is  highly  recommended  that 
such  methods  should  be  introduced. 

When  newspaper  advertising  is  necessary  to  engage  help, 
an  unnecessary  expense  is  immediately  gone  into,  which 
might  be  avoided  if  a  proper  employment  department  is 
organized. 

Coworkers'  Bonuses. —  In  paying  bonuses  to  coworkers, 
the  office  should  differentiate  between  a  bonus  and  a  gift, 
Gifts  are  not  permitted  to  be  deducted  from  income  tax, 
whereas  a  bonus  is  deductible  and  may  be  considered  as  an 
additional  salary  to  be  paid.  There  are  many  forms  in 
which  a  bonus  may  be  paid  to  a  coworker.  They  should 
be  segregated  into  two  parts,  one  for  selling  help,  and  the 
other  for  the  non-selling  help. 

As  to  selling  help,  a  quota  could  be  formulated  which 
quota  should  be  the  equivalent  to  a  percentage  equalling 
the  salaries  to  be  paid  by  the  department.  All  salaries  are 
to  be  uniform.  On  all  sales  made  above  a  stipulated  quota 
a  percentage  equivalent  to  that  of  the  original  quota  equal- 
izes the  salary. 

The  result  would  be  as  follows : 

A  sales  person  receives  a  salary  of  $20  a  week  in  a  de- 
partment. An  allotted  percentage  for  selling  help  per- 
mitted to  a  department  would  be  4  per  cent.  The  quota 
for  that  department  would  be  $500.  For  everything  sold 
above  $500  a  commission  may  be  determined,  to  be  paid 
to  the  sales  persons  as  a  further  inducement  to  perform  a 
greater  sales  record.  The  percentage  might  be  2  per  cent, 
but  never  exceed  4  per  cent. 


314  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

The  bonus  to  be  paid  to  the  non-selling  persons  takes  on 
an  entirely  different  aspect.  "We  assume  that  a  store  is 
willing  to  distribute  a  certain  percentage  of  its  profits. 
Each  classification  of  non-selling  help  is  to  be  given  a  cer- 
tain number  of  points.  Should  a  coworker  be  in  the  em- 
ploy for  one  whole  year,  he  would  be  entitled  to  that  share 
of  the  distribution  of  profits  that  his  number  of  points 
represents.  To  exemplify  this: 

A  store  has  1,000  coworkers  who  are  non-selling  help. 
They  may  receive  one  point,  two  or  twenty  points.  A 
segregation  of  all  these  points  is  an  equivalent  to  10,000 
points.  The  profits  to  be  distributed  would  be  $50,000, 
making  each  point  bear  a  $5  value.  If  a  coworker  is 
entitled  to  12  points,  his  bonus  at  the  end  of  the  year  is 
$60. 

These  bonuses  are  to  be  charged  to  a  bonus  account,  set 
up  by  debiting  ' '  Current  Surplus  ' '  and  crediting  ' '  Bonus 
Account."  "When  the  bonuses  are  paid,  they  are  debited 
to  the  bonus  account,  thereby  closing  out  the  distribution 
of  bonuses  for  the  current  year.  Should  other  bonuses  be  • 
paid  during  the  year  for  a  particular  class  of  work,  it 
should  be  charged  to  additional  salaries  for  the  department 
in  which  the  coworker  is  employed. 

A  thought  beyond  the  distribution  of  the  profits  by  dis- 
tributing points  for  each  particular  position  is  to  central- 
ize the  ambition  of  all  coworkers  as  if  they  were  a  single 
unit.  For  the  greater  the  profits  of  the  organization  the 
greater  will  be  the  distribution  of  profits,  making  all  co- 
workers  work  for  one  common  end.  That  is,  greater  profits 
increase  sales  and  result  in  greater  efficiency. 

Cashiers'  Salaries. — In  setting  up  an  audit  report  for 
salaries,  professional  auditors  will  do  so  by  segregating  this 
form  of  the  store's  burden  as  a  separate  and  distinct  item 
of  expense,  thus  giving  a  departmentized  Burden  schedule 
for  salaries  supporting  the  profit  and  loss  statement.  The 


PROFIT  AND  LOSS  315 

author  is  fully  in  accord  with  such  procedure.  However, 
a  very  careful  study  of  department  store  research  work  will 
result  in  the  segregation  of  all  salaries,  making  each  salary- 
applicable  to  that  particular  division  of  the  store  burden. 
This  is  necessary  to  analytical  and  progressive  manage- 
ment. 

Department  store  cashiering  is  a. part  of  the  store  ser- 
vice as  well  as  a  branch  of  the  accounting  system.  Every 
facility  for  quick  action  on  the  part  of  the  cashier  is  em- 
ployed. These  facilities  are  in  the  form  of  a  central  cashier 
system,  desk  cashiers,  cash  registers,  with  simplified  sales 
checks  to  lessen  the  cashier's  work  in  making  change.  A 
cashier  should  never  be  permitted  to  wrap  parcels  nor  do 
any  desk  auditing.  Her  change  and  cash  turned  in  to  the 
general  cashier  should  be  audited  with  the  cash  sales  checks 
to  reconcile  the  daily  receipts.  The  change  she  disburses 
should  at  all  times  be  new  money  and  bills,  easily  obtain- 
able from  the  banks  with  whom  the  store  carries  its  bank- 
ing account. 

In  the  distribution  of  cashier's  burden,  the  cost  or  sala- 
ries paid  should  be  charged  to  the  departments  in  which 
her  station  is  situated.  Where  her  duties  apply  to  more 
than  one  station,  her  salary  may  be  pro-rated  on  the  basis 
of  sales. 

Exchange  Clerks  Salaries. —  In  almost  all  department 
stores  a  station  is  provided  where  customers  may  have  mer- 
chandise credited  to  their  accounts  and  obtain  refunds  or 
credit  vouchers  to  apply  as  payment  for  other  purchases. 
These  stations  are  known  as  exchange  desks  and  are  in 
charge  of  a  clerk  known  as  Exchange  Clerk. 

The  credits  issued  are  audited  by  the  auditing  depart- 
ment, from  which  audit  the  returns  of  the  various  depart- 
ments of  the  establishment  are  set  up  and  deducted  from 
the  gross  sales,  to  ascertain  the  net  sales  of  a  department. 
Some  stores  are  very  liberal  in  accepting  exchanges, 


316  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

whereas  others  will  not  accept  changes  after  three  or  five 
days.  The  most  liberal  policy  is  not  to  issue  any  credits, 
but  to  insist  upon  the  customer's  accepting  a  cash  refund, 
unless  a  charge  account  is  extended  to  the  customer. 

The  distribution  of  exchange  clerks'  salaries  is  based 
upon  the  returns  and  is  pro-rated  accordingly. 

Adjustment  Department  Complaint  Clerk's  Salaries. — 
The  position  of  the  complaint  clerk  is  by  no  means  an 
enviable  one.  Her  trials  are  many  and  require  a  person- 
ality whose  equilibrium  is  evenly  balanced,  an  amiable  dis- 
position and  a  thorough  knowledge  of  the  store  policy,  sys- 
tem and  departments.  Particularly  at  this  station  is  a 
customer  made  or  forever  lost  to  the  store.  Unless  redress 
is  here  obtained,  a  persistent  customer  will  carry  her  com- 
plaint to  the  management.  Thus  not  only  is  the  valued 
time  of  an  executive  unnecessarily  consumed,  but  the  .com- 
plaint is  permitted  to  reach  an  aggravated  state.  The  man- 
agement should  receive  daily  a  copy  of  every  complaint 
filed  with  complaint  clerk,  so  that  means  may  be  taken  to 
eliminate  faulty  transactions.  Recommendations  are  made 
to  further  appease  the  mind  of  the  complainant,  to  com- 
municate by  letter  from  the  executive  offices  to  ascertain 
her  feelings,  and  to  offer  expressions  of  regrets. 

The  distribution  of  adjustment  bureau's  salaries  and  ex- 
penses is  pro-rated  on  sales. 

Will  Call  Clerks. —  A  well  managed  department, 
regardless  of  its  volume,  will  conduct  its  "  will  call  " 
department  in  its  own  merchandising  section.  The  term 
"  will  call  "  is  sometimes  known  as  "  lay  away  depart- 
•ment,"  deriving  its  terminology  from  the  fact  that  a  cus- 
tomer not  having  sufficient  funds  to  pay  for  merchandise 
desired,  may  have  the  privilege  of  having  her  selection  put 
aside  upon  the  payment  of  a  deposit. 

Many  organizations  set  up  a  "  will  call  ' '  department  in 
a  particular  section  of  the  store,  conveniently  located  and 


PROFIT  AND  LOSS  317 

readily  accessible.  This  department  will  be  in  charge  of 
one  or  more  clerks.  The  merchandising  departments, 
which  transact  lay-aways  through  this  department,  are 
chargeable  with  its  up-keep. 

The  distribution  of  its  cost  may  be  set  up  by  a  record  of 
the  number  of  pieces  handled  from  each  department.  All 
salaries  and  up-keep  expense  are  divided  by  the  total  num- 
ber of  pieces,  to  ascertain  the  cost  per  piece  of  merchandise 
handled  during  the  month.  The  cost  per  article,  multiplied 
by  the  total  of  each  department's  commodity,  will  furnish 
the  exact  Burden  to  be  distributed  and  applied.  Furni- 
ture, pianos,  house  furnishings  and  the  like  do  not  come 
within  the  scope  of  this  department. 

The  method  of  least  resistance  is  to  pro-rate  on  the  basis 
of  sales,  but  this  could  not  be  an  equitable  distribution. 

Inspectors'  and  Inspectresses'  Salaries. —  The  term 
inspector  may  refer  to  examiners  of  newly  arrived  mer- 
chandise, or  to  the  delivery  department  or  to  the  parcel 
wrappers  in  the  various  departments. 

In  the  receiving  department,  inspectors  or  examiners 
will  carefully  examine  all  merchandise  as  to  its  proper 
construction  and  the  fulfillment  of  the  contract  or  condi- 
tions that  may  appear  on  the  copy  of  order.  Usually,  the 
buyer  of  the  department  will  examine  the  commodity  and 
take  cognizance  of  its  construction's  being  the  same  as  the 
sample  from  which  the  purchase  was  made.  Where  exam- 
iners are  employed  in  the  receiving  department,  an  addi- 
tional cost  to  receiving  is  assumed. 

The  delivery  department  inspectors  are  an  additional 
cost  for  the  deliveries.  In  mail  order  houses,  the  inspectors 
in  the  delivery  or  a  mailing  department  will  promiscuously 
pick  up  a  package  from  the  conveyors  or  from  the  assem- 
bling bags,  open  the  package  and  examine  its  entire  con- 
tents. In  the  department  store,  the  requirements  of  inspec- 
tresses  or  parcel  wrappers  are  for  the  examination  of  the 


318  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

price  ticket,  comparing  it  to  the  sales  check  for  price,  de- 
scription, lot  or  style  numbers  and  quantity. 

The  distribution  of  their  salaries  is  chargeable  to  the 
department  in  which  they  are  employed.  Where  inspec- 
tresses  perform  their  duties  for  more  than  one  department, 
their  salaries  are  pro-rated  on  the  sales  in  the  departments 
where  they  are  employed. 

A  fallacy  permitted  by  many  stores  is  permitting  cashiers 
to  do  their  own  inspecting.  Where  cash  registers  are  in 
use,  and  the  sales  person  is  permitted  to  wrap  her  own 
parcels,  the  cashier  will  verify  the  amount  registered  with 
the  prices  appearing  on  the  price  tickets  attached  to  the 
commodities  sold.  This  is  the  only  exception  for  permitting 
cashiers  to  act  as  inspectresses. 

Executive  Clerks. —  The  executive  offices  employ  ste- 
nographers and  clerks  to  perform  the  necessary  clerical 
work  appertaining  to  the  functions  of  propagation  of  com- 
merce or  store  policy. 

The  executives'  salaries  are  a  direct  charge  to  adminis- 
trative burden,  under  the  caption  of  executive  salaries  or 
administrative  salaries.  However,  the  clerks  must  be 
segregated  to  apply  to  indirect  burden.  Executives'  clerks 
and  secretaries  apply  to  owners  and  executives,  other  than 
buyers,  and  general  office  management. 

The  clerk  hire  for  merchandising  offices  cannot  be  applied 
to  the  buying  burden,  in  as  much  as  it  does  not  directly 
apply  to  the  buying  of  commodities.  Hence,  the  clerical 
force  becomes  a  part  of  the  indirect  charge  to  operations 
under  its  own  caption  of  merchandising  section. 

The  distribution  of  this  class  of  expenditure  is  pro-rated 
on  the  basis  of  sales. 

Telephone  and  Telegraph. —  The  account  for  telephone 
and  telegraph  expense,  generally  referred  to  in  this  fashion 
by  bookkeepers,  should  be  in  analytical  form  under  the 
following  captions : 


PROFIT  AND  LOSS  319 

Telephone  Contract. — 

1.  Monthly  messages. 

2.  Cost. 

3.  Toll  calls. 

4.  Repairs  and  station  up-keep. 

5.  Salaries  to  operators. 

6.  Stationery  and  supplies. 

This  procedure  may  appear  to  be  quite  an  extensive 
method  of  accounting,  but  its  simplicity  does  not  assume 
additional  labor  in  bookkeeping.  It  is  doubtful  whether 
the  management  of  any  organization  will  authorize  the  pay- 
ment of  a  voucher  for  telephone  service  without  making 
some  comment  about  the  exorbitant  cost.  This  itself  makes 
it  necessary  for  better  accounting  methods  ta  eliminate 
avoidable  uses  of  telephone  up-keep.  A  direct  wire  to  a  mar- 
ket or  a  market  office  may  be  contracted  for  to  reduce  toll 
cost.  Telegrams  can  be  charged  directly  to  departments 
(operating  departments),  whereas  all  other  costs  may  be 
distributed  and  pro-rated  on  basis  of  sales. 

Stationery  and  Supplies. —  A  burden  that  takes  on 
considerable  proportions  is  that  of  stationery  and  supplies, 
a  store's  printed  matter,  and  wrapping  material.  The  sub- 
ject of  stationery  and  supplies  has  been  discussed  partly 
under  inventories  on  the  balance  sheet.  The  allocation  of 
this  expense  must  receive  careful  attention.  Unnecessary 
expenditures  will  creep  in,  often  harmful  to  the  best 
interests  of  the  organization.  Like  merchandise  purchased 
for  trading  purposes,  authorization  and  confirmation  should 
prevail.  Careful  consideration  and  examination  of  every 
system  form  should  be  approved  by  office  manager  and 
system  manager  prior  to  reordering.  The  purchasing  must 
receive  the  approval  of  the  department  head  who  requisi- 
tions the  supplies,  and  the  order  must  be  confirmed  by  an 
administrative  head. 

All  supplies  are  charged  to  a  supply  inventory,  which  is 


320  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

reduced  only  by  requisitions  signed  by  the  department 
head  desiring  the  supplies.  The  value  of  the  requisition  is 
charged  to  the  department  making  the  supply  request.  At 
the  end  of  the  month,  a  detailed  report  by  the  supply  de- 
partment is  furnished  to  the  general  office,  which  will  allo- 
cate the  departmental  charge,  credit  the  supply  inventory 
and  charge  the  indirect  burden  and  such  other  depart- 
ments as  come  under  the  division  of  the  store  burden.  Sup- 
ply clerks  and  supply  purchasing  agents'  salaries  are  an 
additional  cost  to  supplies. 

Postage  (Postage  Register). —  Defalcations  in  petty 
ways  are  very  common  among  those  intrusted  with  the  cus- 
tody of  postage  stamps.  This  item  of  store  burden  is  not  a 
small  one.  Some  of  the  larger  department  stores  have 
found  this  account  to  reach  as  much  as  $25,000  a  year.  The 
author,  as  comptroller  of  a  mail  order  house,  has  seen  this 
account  run  into  hundreds  of  thousands  of  dollars. 

While  postage  stamps  on  hand  may  appear  as  a  deferred 
asset,  their  value  represents  a  convertible  asset.  This  asset 
is  reduced  by  its  absorption  of  store  or  administrative  bur- 
den. The  custodian  of  all  postage  stamps  should  keep  a 
book  record  in  the  same  manner  as  the  debit  and  credit  side 
of  the  cash  book  is  maintained.  Requisitions  should  be 
required  to  release  stamps  from  their  custodian,  who  will 
enter  on  the  credit  side  the  value  of  stamps  issued,  charged 
to  the  department  making  requisitions.  The  columnar 
book,  known  as  postage  register,  is  quite  appropriate.  An 
occasional  audit  should  be  made  to  verify  any  misuse. 
Parcel  post  records  should  be  checked  with  the  postage 
register  for  reconciliation.  The  allocation  of  this  burden 
should  be  obtained  through  the  postage  register. 

Paid  up  Insurance. —  Premiums  are  the  consideration 
paid  by  the  assured  contracting  insurance  against  loss.  The 
prepaid  premiums  are  a  deferred  asset,  and  expired  pre- 
miums are  a  direct  charge  to  operations.  The  first  pro- 


PROFIT  AND  LOSS  321 

cedure  in  accepting  a  policy  of  an  insurance  company  is  to 
determine  its  financial  standing  as  to  its  ability  to  meet 
contingent  liabilities.  This  is  readily  obtainable  through 
the  financial  publications,  in  book  form,  through  state  con- 
trol, or  the  underwriter's  board.  The  statements  of 
operating  companies  are  divided  into  two  schedules  —  one 
being  the  Financial  Schedule  and  the  other  the  Statistical 
Schedule. 

The  solvency  of  the  insurance  company  in  most  states 
is  determined  by  a  state  insurance  department.  However, 
the  examiners  are  not  always  experts,  and  care  as  to  the 
solvency  of  the  company  should  be  taken  by  the  financial 
management  prior  to  accepting  its  insurance. 

A  varied  insurance  is  carried  by  department  stores. 
This  includes  fire  insurance  for  stock  and  fixtures.  It  is 
recommended  that  replacement  value  should  be  preferred 
to  that  of  a  100  per  cent  or  80  per  cent  co-insurance  clause. 
The  cost  of  this  insurance  for  expired  premiums  should  be 
charged  to  indirect  burden. 

Transportation  and  parcel  post  insurance,  for  receiving 
purposes,  are  chargeable  to  the  Receiving  burden. 

Automobile  insurance,  for  fire,  theft  and  accident  colli- 
sion, is  chargeable  to  the  delivery  department.  Where  it  is 
maintained  for  the  Receiving  department,  this  insurance 
cost  should  apply  to  receiving  cost. 

Sprinkler,  boiler,  plate  glass,  house  accident  and  elevator 
insurance  are  chargeable  to  occupancy. 

Bank  messenger,  hold  up,  burglary  insurance,  employees' 
bonds  and  compensation  are  indirect  allocations. 

The  nature  of  the  insurance  will  designate  its  distribu- 
tion. 

Carpenters. —  Most  every  department  store  employs 
a  staff  of  carpenters  and  maintains  a  workshop.  The 
scope  of  labor  not  only  includes  carpentry,  but  painting  as 
well.  It  has  been  found,  after  considerable  experimenting, 


322  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

that  it  is  more  economical  to  maintain  a  carpentry  depart- 
ment than  to  contract  with  outside  contractors  for  the  up- 
keep of  this  particular  classification  of  labor. 

The  moving  of  fixtures  and  their  construction  has  been 
discussed  under  reserve  for  depreciation.  It  is  doubtful 
whether  any  retail  establishment  is  now  in  existence  that 
has  not  at  some  time  or  other  moved  about  its  fixtures,  or 
that  is  not  constantly  changing  its  departments.  It  appar- 
ently seems  to  be  a  characteristic  amongst  retailers,  no  mat- 
ter what  commodity  they  merchandise. 

Reconstruction  of  fixtures  and  of  the  layout  of  the  store 
and  its  departments  has  become  habitual  with  the  progres- 
sive merchant.  This  is  done  for  the  convenience  of  cus- 
tomers and  for  the  better  presentation  of  the  varied  stocks 
displayed  to  catch  the  eye  of  the  prospective  purchaser. 
With  this,  the  carpenter  assists  the  display  manager 
in  the  artistic  manner  of  display  to  present  commodities 
to  better  advantage. 

To  exemplify  this,  a  department's  fixtures  will  be  in- 
stalled and  painted  mahogany  color.  The  manager 
after  visiting  other  stores,  will  find  blue  a  better  shade  to 
display  the  stocks  of  this  particular  department.  This 
color  makes  a  profound  impression  and,  upon  his  home 
coming,  the  manager  immediately  proceeds  to  change  the 
fixture  construction  and  to  paint  the  fixtures  blue.  A 
short  time  elapses  and  the  management,  after  making  other 
visits,  finds  that  the  prevailing  color  combination  for  this 
particular  stock  is  a  combination  of  blue  and  gray  or 
white.  Again  the  change  is  made.  Thus,  the  prime  rea- 
son for  a  carpentry  department  is  established. 

Shelvings,  tables,  cases,  floorings  and  partitions  require 
repairing.  Oiling  the  wood  for  better  appearance  and 
longer  life  is  a  necessity.  Here,  too,  the  carpenter  is  very 
essential.  The  accounting  for  this  department  is  set  up 
and  controlled  by  the  budget  system,  segregating  the  vari- 
ous expenditures  entailed  by  this  department. 


PROFIT  AND  LOSS  323 

Construction  of  new  fixtures,  such  as  display  tables  and 
«how  cases,  is  a  direct  cost  to  new  store  equipment.  All 
cost  for  labor,  .material  and  burden  should  be  carried  on  the 
store  equipment  account  as  an  asset.  Replacements  are 
direct  charges  to  reserve  for  depreciation. 

Repairs  and  maintenance  of  all  store  equipments  are  an 
indirect  charge  to  store  burden  and  consequently  are 
chargeable  to  the  profit  and  loss  account.  The  allocation 
of  these  charges  to  departments  is  pro-rated  on  the  basis  of 
sales. 

The  administration  of  some  organizations  charges  the 
entire  equipment  to  the  specific  merchandising  department 
in  which  the  selling  equipment  is  situated,  thus  applying 
capital  equitably.  Where  this  capital  distribution  is  in 
effect,  repairs  and  maintenance  are  applicable  to  the  de- 
partment where  the  repairs  and  maintenance  expenditures 
take  place. 

Financial  Income. —  The  income  of  an  organization, 
organized  to  carry  on  trade  in  merchandising,  using  the 
term  merchandise  as  is  commonly  interpreted  in  the  field 
of  commerce,  may  be  divided  into  two  parts : 

One  is  the  profits  accumulated  from  turnover  of  mer- 
chandise ; 

The  other  is  the  profits  accumulated  through  financial 
transactions. 

In  the  entire  construction  of  retailing,  the  financial  prin- 
ciples of  merchandising  as  the  basis  for  calculations  of 
every  conceivable  angle,  depend  upon  ascertaining  the  turn- 
over. It  will  readily  be  seen  that,  in  order  to  obtain  this, 
all  financial  incomes  or  anything  appertaining  to  finance 
that  might  add  an  additional  profit,  must  be  eliminated. 
It  therefore  behooves  a  department  store  or  any  retailing 
establishment  to  segregate  its  profits,  so  that  merchandising 
profits  that  accumulate  through  financial  transactions 
should  be  set  up  separately  on  the  profit  and  loss  state- 
ment. 


324  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

Merchandising  Discounts. —  Almost  all  purchases  are 
subject  to  discount.  The  percentage  of  discount  generally 
applicable  to  a  commodity  is  that  which  prevails  in  the 
market  for  such  commodities.  The  terms  of  sale,  known 
as  dating,  represent  a  definite  time  allowed  for  the  pay- 
ment of  the  invoice  covering  a  shipment  for  merchandise 
bought,  sold  and  delivered.  The  vendor  agrees  with  the 
vendee  that  if  at  the  end  of  ten  days  from  the  date  of  ship- 
ment, or  thirty  days,  or  sixty  days,  as  the  agreement  of  the 
sale  may  be,  the  account  is  paid,  a  discount  of  a  stipulated 
percentage  is  permissible.  However,  if  the  invoice  ren- 
dered to  cover  a  shipment  is  not  paid  at  the  termination  of 
the  definite  time  mentioned  on  the  invoice,  it  is  optional 
with  the  vendor  whether  or  not  the  discount  will  be  per- 
mitted in  the  settlement  by  the  vendee.  It  narrows  down 
to  the  fact  that  the  discount  becomes  a  financial  transac- 
tion. 

Assuming  that  the  debtor  is  unable  to  meet  his  obligation 
at  the  stipulated  time  which  had  been  arranged,  in  order 
for  the  debtor  to  take  advantage  of  the  discount  applicable 
to  the  invoice  which  is  maturing,  he  will  often  negotiate  a 
loan  with  either  his  bank  or  some  other  individual,  to  whom 
the  debtor  agrees  to  pay  interest  for  the  loan  of  sufficient 
funds  to  meet  his  obligation. 

The  loan  having  been  negotiated,  the  debtor  will  then 
proceed  to  settle  his  obligation  with  his  creditor  in  order 
to  derive  the  benefits  of  the  discount,  to  which  such  invoice 
is  subject  under  the  terms  of  purchase.  The  debtor  is 
willing  to  pay  a  certain  amount  of  interest  for  the  loan  of 
funds  in  order  that  he  may  receive  a  greater  discount  on 
the  proceeds  of  the  turnover  of  cash.  The  discount  re- 
ceived on  merchandise,  as  can  readily  be  seen,  resolves  itself 
into  a  financial  transaction. 

Accountants  may  argue  that  a  price  paid  for  merchan- 
dise is  the  gross  price,  after  deducting  the  discount,  to 


PROFIT  AND  LOSS  325 

which  the  price  paid  for  the  merchandise  is  subject.  The 
author  admits  that  accountants  who  argue  along  these  lines 
are  correct  when  an  invoice  is  subject  to  what  is  known  as 
a  "  Trade  Discount."  But  where  the  ordinary  terms  are 
applicable,  should  an  invoice  be  paid  at  the  expiration  of 
the  terms  of  sale,  a  financial  transaction  becomes  evident. 
A  segregation,  therefore,  in  order  to  obtain  the  cost  of  sales, 
is  set  up  on  a  retailing  profit  and  loss  statement.  This 
shows  the  cost  of  merchandise  entirely  separate  from  finan- 
cial transactions.  Discounts  received  from  merchandise 
purchases,  other  than  trade  discounts,  are  set  up  on  the 
profit  and  loss  statement  under  the  caption  of  "  Financial 
Income. ' '  It  must  not  be  overlooked  for  a  moment  that  the 
mark  up  of  stocks  is  on  the  gross  price  paid  to  the  manu- 
facturer. No  consideration  is  given  to  terms  of  sales  other 
than  those  here  described. 

Miscellaneous  Purchase  Discount. —  It  is  recommended 
that  separate  accounts  be  set  up  to  show  discounts  obtained 
from  merchandise  purchases  and  discounts  obtained  from 
expense  purchases  and  miscellaneous  purchases.  These  are 
not  very  extensive.  They  generally  depend  upon  the  vol- 
ume of  business  enjoyed  by  an  organization. 

Purchasing  Agents'  Discounts. —  Purchasing  agents 
may  be  placed  in  the  same  category  as  salesmen  working  on. 
the  commission  basis,  who  receive  a  commission  on  the  pro- 
ceeds of  their  sales.  The  purchasing  agent's  organizations 
are  more  prominent  in  the  eastern  states  than  in  any  other 
section  of  the  country. 

There  are  many  large  department  stores  that  will  not 
permit  purchasing  agents'  discounts,  for  the  reason  that  a 
large  amount  of  expenditure  is  involved  in  carrying  on 
their  accounts,  and  their  purchases  are  subject  to  a  high 
percentage  of  returns. 

The  general  discount  permitted  to  purchasing  agents  for 
p11  sales  effected  through  them,  either  direct  or  indirect, 


326  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

averages  10  per  cent.  The  question  arises  whether  or  not 
the  percentage  of  discount  given  such  purchasing  agents 
can  really  be  termed  a  discount.  If  termed  a  discount,  it 
comes  under  the  heading  of  financial  income,  and  is  a 
direct  charge  against  financial  incomes  of  other  sources. 
However,  it  is  the  contention  that  the  discount  given  to  the 
purchasing  agent  is  a  brokerage  fee  or  a  commission  for 
sales  effected  through  their  efforts,  and  may  be  applied  in 
the  same  manner  as  the  salary  and  commission  paid  to  any 
sales  person  in  any  particular  department  of  a  store's  or- 
ganization, in  as  much  as  it  is  a  selling  burden. 

The  purchasing  agent's  discount  should  be  applied  under 
selling  burden  as  a  brokerage  cost  for  selling.  There  would 
be,  in  the  distribution  of  this  additional  selling  burden, 
rather  a  difficult  problem  for  an  equitable  application  of 
additional  selling  cost.  To  apply  the  distribution  by  pro- 
rating on  the  basis  of  sales  may,  in  many  instances,  impose 
an  unnecessary  burden  on  certain  departments  whose  sales 
are  few  or  none  at  all  through  purchasing  agents. 

Wherever  possible,  the  auditing  department  segregates 
its  charge  accounts  from  those  of  personal  charges  and  pur- 
chasing agents  by  departments,  in  order  to  set  up  a  proper 
equitable  selling  burden.  Where  the  bookkeeping  depart- 
ment makes  its  own  audit  for  charge  accounts,  this  informa- 
tion may  be  obtained  through  them,  and  passed  on  to  the 
Statistical  department,  where  additional  selling  burden  will 
be  distributed  to  its  proper  source. 

Interest  Earned. —  Interest  earned  is  a  direct  credit  to 
financial  income.  The  source  of  such  earnings  may  be 
from  interest  on  daily  bank  balances  or  from  investments 
in  stock,  bonds  or  property  other  than  those  required  to 
conduct  the  affairs  of  the  organization.  Interest  earned 
through  the  anticipation  of  pre-maturity  obligations,  other 
than  Notes  Payable,  would  come  under  this  caption. 


PROFIT  AND  LOSS  327 

Interest  Paid  up. —  The  cost  for  borrowing  money  and 
the  penalties,  paid  in  the  form  of  interest,  for  obligations 
permitted  to  remain  unpaid  after  maturity,  are  a  direct 
charge  against  earnings  through  financial  transactions. 
Interest  paid  on  investments  is  applicable  to  the  income 
from  such  investments,  and  must  not  conflict  with  the  finan- 
cial income,  and  the  operations  for  which  the  store  has 
been  organized. 

Loss  Account. —  The  ordinary  bookkeeping  methods 
are  usually  found  to  carry  a  profit  and  loss  account  during 
the  entire  period  or  fiscal  year,  with  its  closing  entries  at 
the  termination  of  its  business  period.  The  profit  and  loss 
account  should  not  be  opened  until  the  ending  of  the  fiscal 
year,  and  then  for  the  purpose  of  computing  profits  or 
losses  to  determine  the  results  of  the  organization's  trans- 
actions. During  the  course  of  the  year,  all  profits  that  are 
directly  made,  except  through  the  buying  and  selling  of 
merchandise,  should  be  applied  to  a  specific  account. 

Losses  sustained  through  uncollectable  accounts,  and 
written  off  the  records,  should  be  transferred  to  the  sus- 
pense ledgers  and  carried  to  a  loss  account,  enumerating 
under  such  loss  account  the  name,  address  and  amount  of 
the  loss. 

Section  234,  items  4  and  5,  deductions  allowed  in  the 
income  tax  of  1918,  are  as  follows : 

"  Items  allowed  for  losses  sustained  during  the  taxable 
year,  and  not  compensated  for  by  insurance  companies  or 
otherwise,  debts  ascertained  to  be  worthless  and  charged 
off  within  the  taxable  year,  the  amount  of  net  loss  must 
represent  the  actual  loss  over  and  above  all  income. ' ' 

This  being  required  within  all  interpretations  of  the  in- 
come tax  law,  a  division  between  merchandising  income 
and  financial  income  must  be  set  up.  It  therefore  is  neces- 
sary to  show  loss  account,  after  the  gross  income  and  the 


328  KETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

financial  income  have  been  obtained,  by  deducting  the  loss 
account  in  order  to  ascertain  the  final  net  profits  of  an 
organization. 

Extraordinary  Income. —  Organizations  are  formed  to 
carry  on  trade  along  specific  lines.  If  incorporated, 
specifications  are  incorporated  in  the  charter  granted  by 
the  state 'of  incorporation,  granting  permission  for  the  con- 
ducting of  a  particular  branch  of  commerce  for  profit.  In- 
come obtained  through  channels  other  than  the  specific 
object  of  organization  must  be  treated  as  entirely  distinc- 
tive from  all  other  income.  It  must  be  set  up  on  the  profit 
and  loss  statement  as  Extraordinary  income.  This  will 
appear  under  its  own  caption,  following  the  completion  of 
the  Profit  and  Loss  statement.  Adding  the  extraordinary 
income  to  the  previously  obtained  income  gives  a  final 
result. 


CHAPTER  XIY 

ALTERATION  DEPARTMENT 

Alteration  departments  are  not  conducted  for  profit,  but 
for  service  to  customers.  Any  retailing  organization  con- 
templating obtaining  profit  from  this  section  of  the  organi- 
zation may  as  well  shut  its  doors,  or  close  out  the  depart- 
ment requiring  the  alteration  rooms.  The  best  that  can  be 
hoped  for  is  that  the  alteration  department  will  break  even. 
Occasionally  a  fiscal  year  may  close  with  a  profit  from  this 
department.  When  this  occurs,  it  is  advisable  to  make  a 
thorough  investigation,  not  from  the  standpoint  of  ledger 
figures,  nor  of  the  alteration  manager,  but  of  the  prestige  of 
the  store,  the  satisfied  customer,  and  the  merchandising 
department. 

The  alteration  rooms  referred  to  are  those  for  men's  or 
boys'  clothing,  millinery  workrooms,  and,  greatest  of  all, 
women's  and  misses'  apparel. 

Successfully  conducting  the  alteration  department  of 
the  ready-to-wear  shop  or  department  store  has  always  been 
more  or  less  of  a  problem  that  buyers  and  managers  experi- 
ence difficulty,  in  solving  correctly.  Perhaps  in  most  in- 
stances the  management  has  not  considered  the  advantages 
to  be  gained  by  the  study  of  the  economic  conditions  gov- 
erning this  department. 

That  95  per  cent  of  all  alteration  rooms  are  conducted 
at  a  loss  is  not  merely  an  assumption  but  a  statistical  fact. 
In  most  cases  the  reason  for  the  loss  is  lack  of  adequate 
system,  inattention  through  executive  incapacity,  expendi- 
tures for  unnecessary  workroom  supplies,  excessive  or  ineffi- 
cient help. 

There  is  the  "  wiseacre  "  who  believes  the  alteration 

329 


330  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

room  should  manage  itself  and  that  all  that  is  required  is 
a  good  fitter.  He  awakens  at  the  termination  of  the  season 
or  year  with  the  sales  record  decreased  or  else  he  tries  to 
fathom  the  problem  of  where  his  profits  have  gone. 

A  ready-to-wear  department,  regardless  of  its  volume  of 
sales,  must  be  organized  perfectly  and  governed  by  a  per- 
fect system,  with  its  every  subsidiary  department  under 
control  by  efficient  management.  "With  these  essentials  ob- 
served, there  is  no  valid  reason  why  an  alteration  room 
should  not  pay  its  own  expenses  and  assist  in  pleasing 
patrons. 

The  modus  operandi  of  the  alteration  system  begins  with 
the  sale  of  a  suit,  for  example.  The  saleswoman  in  this 
instance  has  detached  the  forty-two-size  ticket  and  sold  it 
to  Mrs.  Smith  as  a  regular  size  forty.  Yes!  we  are  per- 
fectly aware  that  the  clerk  had  no  right  to  misrepresent 
the  garment,  even  if  it  was  only  a  difference  in  the  size,  but 
that  is  a  story  in  itself.  The  garment  having  been  sold, 
it  is  up  to  the  fitter  to  make  it  fit. 

Outside  of  the  cities  of  New  York  and  Chicago,  perhaps 
Philadelphia,  Boston  and  Cincinnati,  the  fitters  are  not 
real  tailors.  They  are  dressmakers,  with  only  a  fair  knowl- 
edge of  tailoring.  However,  long  experience  has  probably 
fitted  them  to  assume  the  duties  of  "  a  fitter." 

It  would  be  fitting  and  proper  to  instruct  them,  with  a 
view  to  perfect  efficiency,  in  a  fixed  set  of  rules,  and 
monthly  to  remind  them  of  these  rules  governing  their  par- 
ticular work.  The  following  "  Don'ts  "  are  very  sugges- 
tive: 

Don't  keep  the  customer  standing  over  twenty  minutes 
for  a  fitting. 

Don't  talk  to  the  customer  unless  spoken  to.  Be  brief, 
tut  polite. 

Don't  make  any  comment  on  the  quality  of  the  materials 


ALTERATION  DEPARTMENT  331 

or  styles,  nor  offer  your  opinion  on  how  badly  the  tailor 
made  the  garment. 

Don't  tell  the  customer  the  alteration  has  a  lot  of  work 
to  it. 

Don't  make  any  rash  promises  for  fitting  or  delivery. 

Alteration  Ticket. —  An  electric  bell  connecting  the 
suit  department  with  the  alteration  room  will  promptly 
call  the  fitter  to  the  department.  Where  a  store  does  a 
large  volume  of  business,  the  fitters  should  be  constantly 
on  the  floor.  Subsequent  to  the  sales  check's  having  been 
made,  an  alteration  ticket,  as  shown  in  Form  54,  filled  out 
and  attached  to  the  garment,  must  be  as  near  perfection  as 
is  humanly  possible.  Form  54  is  the  result  of  more  than, 
fifteen  years  of  experimenting  and,  when  finally  put  into 
use,  has  been  found  excellent  in  every  respect. 

The  alteration  ticket  is  a  combination  envelope  and 
alteration  instruction  ticket.  When  the  sale  has  been  com- 
pleted, the  customer  receives  the  voucher  of  the  sales  check. 
The  duplicate  sales  check  is  placed  within  the  envelope 
alteration  ticket  by  the  sales  person  for  future  reference. 

Fitters,  as  a  rule,  pin  up  all  alterations.  To  those 
familiar  with  ready-to-wear  merchandise,  this  term  is 
readily  comprehensive.  It  means  pinning  the  garment, 
so  that  it  will  fit  the  form  of  the  customer  perfectly.  In 
merchant  tailoring  it  is  the  custom  to  chalk  the  garment. 
However,  in  addition  to  the  pinning,  measurements  are 
also  required  for  finishing  purposes.  So  the  measurements 
are  printed  on  the  ticket  for  the  tailor's  further  informa- 
tion. 

In  the  particular  sale  here  exemplified,  the  suit  consists, 
of  two  pieces,  a  coat  and  a  skirt.  The  alteration  ticket  con- 
sists of  two  parts,  with  strings  attached  to  each ;  one  indi- 
cating, the  skirt  alteration,  and  the  other  indicating  the 
coat  alteration.  Each  ticket  is  attached  to  the  part  of  the 


332  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

garment  it  represents.  The  ticket  itself  gives  all  the  neces- 
sary procedure.  However,  to  insure  the  elimination  of 
errors,  a  copy  of  the  sales  check  is  placed  on  the  face  of  the 
alteration  ticket,  in  the  event  of  a  C.  0.  D.  sale,  to  further 
identify  the  garment  when  completed  and  ready  for  ship- 
ment. 

Upon  the  completion  of  the  alteration  envelope  and  iis 
attachment  to  the  respective  parts  of  the  garment,  the  suit 
will  be  sent  to  the  alteration  department,  where  it  is  received 
by  the  clerk  in  charge  of  the  book  records. 

Assuming  that  charges  for  suit  alterations  vary  from 
75  cents  up,  a  schedule  of  prices  for  diverse  alterations 
should  be  made,  stipulating  the  charges  to  customers  for 
such  alterations  as  enlarging  the  armhole,  raising  the  back 
under  collar,  removing  wrinkles  under  the  collar,  padding 
the  bust,  shortening  the  coat  or  the  skirt,  hemming  the  bot- 
tom, taking  in  around  the  hips.  There  should  also  be  a 
schedule  for  separate  coats,  dresses,  gowns,  etc. 

The  merchandising  office,  in  compiling  this  schedule  of 
prices  to  be  paid  for  alterations,  should  give  considerable 
care  and  attention  to  the  amount  the  department  can  pay 
for  each  particular  kind  of  work.  Likewise,  there  should 
be  a  fixed  schedule  of  charges  to  customers  for  the  various 
alterations,  having  in  mind  a  fair  margin  above  labor  costs 
to  cover  fittings,  supplies,  additional  materials  and  unfore- 
seen contingencies  that  might  incur  additional  expense. 
Also  not  forgetting  that  Mrs.  Smith,  who  purchases  a  suit, 
refuses  to  pay  for  any  alteration  and  that,  rather  than  lose 
the  sale,  the  alteration  is  put  through  free  of  charge.  Bad 
business,  of  course,  either  way,  but  rules  should  be  rules, 
and  it  is  safe  to  say  that  when  a  customer  is  very  much 
taken  with  her  selection,  she  will  invariably  pay  any  rea- 
sonable charge  for  an  alteration.  Therefore,  it  would  not 
be  recommended  that  any  exceptions  be  made  to  the  rule  of 
charging  for  alterations. 


3 


333 


334  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

Alteration  Record. —  The  clerk  in  charge  of  the  altera- 
tion room  records  will  enter  all  alterations  that  enter  the 
workroom  in  a  record,  such  as  is  described  in  Form  55.  The 
date  when  the  alteration  is  received  in  the  workroom  must 
be  placed  on  the  alteration  envelope,  and  must  likewise  be 
entered  jn  the  record.  The  number  column  is  a  consecu- 
tive number  indicating  the  number  of  alterations  thus  far 
for  the  season.  These  numbers  being  consecutive,  the  num- 
ber of  alterations  made  during  a  season,  week  or  month  is 
readily  obtainable  by  deducting  the  number  from  a  date, 
beginning  from  a  date  ending. 

The  customer's  name  and  address  follow.  A  description 
of  the  article  is  essential,  such  as  a  Suit,  Coat,  Dress,  Waist, 
etc.  The  record  of  the  sales  person's  number  has  been 
found  necessary,  very  often,  to  meet  investigation  or  trac- 
ing. This,  along  with  the  date  of  purchase,  must  never  be 
overlooked  in  the  entry. 

The  alteration  number  is  a  consecutive  number  and 
should  be  preceded  by  the  department  number  or  letter. 
If  a  suit  department  is  known  as  Dept.  B,  the  entry  should 
be  B  1.  Or,  if  the  suit  department  is  known  as  Dept.  21, 
the  entry  should  be  21-1. 

The  alteration  number  having  been  given,  the  same  num- 
ber must  appear  on  the  alteration  envelope.  This  altera- 
tion number  —  which  is  used  for  many  purposes  during  the 
course  of  alteration  —  such  as  identification  and  quick 
location  during  process  of  work,  date  of  delivery  to  cus- 
tomer, and  charge  for  the  alteration  —  is  essential  for 
auditing  the  sales  records. 

The  accounting  procedure  for  alterations  has  been  dis- 
cussed previously.  All  alteration  charges  are  a  credit  to 
this  department.  Its  up-keep,  covering  every  element,  is  a 
direct  charge. 

The  alteration  department  of  a  store  is  a  necessity.  It 
cannot  be  dispensed  with  and  its  efficiency  must  be  para- 


335 


336  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 


mount  to  the  entire  organization.  The  difficulty  of  efficient 
organization  and  the  added  overhead  to  operations  may  be 
laid  directly  to  the  manufacturer's  carelessness  in  produc- 
tion. This  is  evident  in  almost  one  garment  out  of  every 
six.  In  addition  to  this,  the  manufacturers,  through  ineffi- 
ciency or  mismanagement,  have  their  garments  marked 
with  wrong  sizes. 

It  is  a  common  occurrence  for  the  shipping  clerk  of  a 
garment  manufacturer  to  take  a  size  38  and  change  it  to  a 
40  size,  by  remarking  the  ticket  or  changing  it,  just  because 
he  does  not  have  on  hand  a  size  40  to  fill  a  retailer's  order 
calling  for  such  a  size. 

Sizes. —  Then,  again,  the  designer  of  a  manufacturer 
will  originate  a  style  and  perhaps  forget  to  correct  his  pat- 
tern, or  he  will  skimp  it.  The  grader,  who  cuts  the  pat- 
tern for  the  various  sizes,  may  not  be  efficient  in  his  work. 
When  the  garments  are  cut  on  the  graded  patterns  and 
completed,  they  will  not  fit  women  as  they  should. 

A  correct  schedule  of  sizes  for  women's  apparel  is  shown 
in  the  following  chart : 


36 

38 

40 

42 

44 

46 

48 

50 

52 

Around  bust  

37J 
28 

40 

INCl 

4Qi 
30 

42 

IES 

42"! 
32 

44 

44i 
34 

46 

46i 
35| 

48 

48| 
37| 

50 

5Qi 
39 

52 

52i, 
40^ 

54 

54| 
411 

56 

Around  waist  

Around  hips   six   inches 
below  waist  line  .  . 

STOUTS 


381 

40-J 

42i 

44i 

46^ 

48i 

50i 

52£ 

Around  bust  

43 
30-J 

41 

INC] 

45 
32i 

43 

iES 

47 
34i 

45 

49 
36i 

47 

51 

38^ 

49 

53 
40£ 

51 

55 
41i 

53 

57 
42| 

55 

Around  waist  

Around  hips  six    inches 
below  waist  line  

ALTERATION  DEPARTMENT 


ODD  SIZES 


337 


37 

39 

41 

43 

45 

47 

49 

51 

INCHES 


Around  bust  

38} 

40} 

491 

44} 

46  - 

48} 

50} 

52  5 

Around  waist  

31 

33 

35 

37 

39 

41 

43 

Around   hips   six   inches 
below  waist  

44 

46 

48 

50 

5? 

54 

56 

58 

Work  Production  Ticket. —  A  charge  is  made  for  every 
alteration,  whether  or  not  the  charge  is  sufficient  to  cover 
the  alteration.  The  customer  is  not  expected  to  pay  any 
addition  to  the  original  charge  as  set  forth  by  the  sales 
person  at  the  time  a  sale  is  effected.  The  schedule  of  prices 
chargeable  for  alterations  is  set  up  by  departments  and 
can  only  be  revised  through  the  statistical  department  of 
the  office,  through  recommendations  by  the  comptroller  to 
the  merchandising  office.  The  statistics  are  obtained 
through  the  work  production  tickets. 

The  need  for  cost  accounting  becomes  apparent.  To 
obtain  the  necessary  requirements  a  procedure  similar  to 
that  employed  by  manufacturing  organizations  is  resorted 
to.  That  is,  job  production  cost  finding  is  necessary.  The 
results  of  many  similar  jobs  are  the  basis  for  the  charge. 

The  production  ticket  will  be  marked  by  the  foreman  or 
department  manager,  the  ticket  being  hung  by  means  of 
an  attached  string  to  the  garment.  The  coworker's  name 
(better  known  as  operative  number)  and  the  time  put  in  for 
his  particular  work  are  added.  Material  cost  will  be 
entered  by  the  clerk  of  the  department.  Upon  completing 
the  job,  each  ticket  is  sent  to  the  general  office  for  labor 
costs  to  be  entered  and  burden  applied. 

The  Statistical  Record  of  alteration  costs,  in  analytical 
form  of  the  various  classification  of  stock  carried  by  de- 
partments using  the  workroom,  is  set  up  for  monthly  re- 


338  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

ports.  An  analysis  of  costs,  by  this  means,  is  the  logical 
method  of  determining  charges  to  be  applied  for  various 
alterations. 

The  difficulty  arises  of  meeting  competition.    Most  stores, 


WORK   PRODUCTION  TICKET 

ALTERATION  DEPARTMENT 
#  umber. 


'Date- 
Received 

„  tfime      _                        , 

otrr. 

Completed 

Time 

Description  of  Alteration. 


QIVKN  TO 

NUMBER 

RECEIVED 

Fl  liH£D 

COST. 

Fitter 

(   Time 

=3 

j   Date 

Tailor 

(  Timo 

(  Date 

Seamstress 

(  Time 

?  Date 

Presser 

(  Time 

I  Date 

Examiner 

(  Time 

I  Date 

Total  Labor  Cost 

Material  Used 

Overhead  Applied 

Total  Cost 

Alteration" 
Co-worker's 


FOEM   56. —  WORK   PRODUCTION  TICKET 


ALTERATION  DEPARTMENT  339 

in  fact  it  would  not  be  amiss  to  say  almost  all  stores,  set 
up  arbitrary  charges.  Where  they  get  their  cost  findings 
is  a  mystery  to  themselves.  The  general  argument  for  their 
charge  schedule  is  that  their  competitors  charge  a  specific 
price  for  certain  alterations,  and  that  they  follow  blindly. 

There  are  specialty  shops  in  most  communities  that  ad- 
vertise "  Alterations  free  of  charge."  What  a  fallacy  this 
.is.  The  burden  of  a  store  must  thus  of  necessity  increase, 
since  labor  and  material  for  alterations  are  not  given  away 
for  nothing.  The  customer  must  pay  somehow,  and  she 
does. 

Alteration  Room  Layout. —  An  inspection  of  alteration 
departments  in  department  stores  or  specialty  shops  will 
disclose  the  usual  fallacy  of  giving  this  particular  depart- 
ment as  little  room  as  possible.  This  is  not  done  because 
it  is  the  desire  of  the  management  to  do  so,  but  for  want 
of  adequate  selling  space,  which  receives  preference. 

Plenty  of  sunlight  and  ventilation  should  be  foremost  in 
its  planning.  The  odor  from  damp  pressing  cloths,  escap- 
ing gas,  steam  boilers  and  benzine  produces  fumes  that  are 
obnoxious  and  detrimental  to  health. 

Compartments  for  hanging  the  various  garments  to  be 
finished  on  specific  days  should  be  set  up  by  means  of 
1%  inch  iron  pipes,  projecting  from  walls  and  ceilings, 
each  compartment  indicating  a  particular  day  of  the  week. 
The  layout  of  tailor's  tables  to  be  set  should  give  plenty  of 
working  room,  all  of  which  is  to  be  regulated  by  the  space 
allowed  for  the  department.  The  equipment  should  be 
modern  in  order  to  facilitate  quick  service. 

There  should  be  special  compartments  for  special  deliv- 
ery alterations.  This  will  be  indicated  by  a  red  paster, 
marked  "  Rush,"  with  the  time  to  be  delivered  pasted  on 
the  alteration  ticket. 

Alterations  for  Stock. —  It  is  not  usually  the  custom, 
•where  a  garment  requires  alterations  for  stock,  that  a 


340  RETAIL  ORGANIZATION  AND  ACCOUNTING  CONTROL 

charge  to  the  department  requesting  the  alteration  is 
affixed.  It  would  be  inconsistent  with  good  management 
to  eliminate  this  charge  and  add  a  burden  to  the  alteration 
department  without  its  receiving  a  return  for  labor  and 
material.  In  making  stock  alterations,  the  cost  charged 


r«mSOI8.t7-tOM 


O 

ALTER  FOR  STOCK 


Date 

Floor......... 

REMARKS 


CAa 


uihon^ed  by. 


FORM  57. —  ALTER  FOR  STOCK 

by  the  alteration  department  should  be  carried  as  an  addi- 
tional cost  of  merchandise  by  the  merchandising  depart- 
ment. Many  such  alterations  would  eventually  effect  the 
mark  up.  This  method  gives  an  equitable  distribution  of 
cost.  Such  cost  is  a  credit  to  the  alteration  department 
(see  Form  57). 

Alterations  for  Window  Display. —  A  store's  greatest 
advertisement  is  its  window  display.  Here,  merchandise 
is  placed  on  forms,  offset  by  expensive  backgrounds  and 
decorations.  When  a  garment  is  placed  on  a  form  for  dis- 


ALTERATION  DEPARTMENT 


341 


-*ress   C 


£  fa 


'V0/- 


FOBM   58. —  AJLTEB   FOB   WINDOW   GABMENT 

play,  its  elegance  must  be  presented  in  such  a  manner  as 
to  create  a  shopper's  desire.  The  merchandise,  if  wearing 
apparel,  must  be  pressed  thoroughly,  all  the  hooks  and  eyes 
sewed  carefully,  and  there  must  be  nothing  out  of  place  that 
indicates  a  defect.  The  window  decorators  will  send  such 
garments  to  the  alteration  department  for  the  necessary 
attention.  The  cost  of  such  alteration  attention  is  charge- 
able to  window  display  against  the  department  whose  mer- 
chandise is  prepared  for  the  display  window  (see  Form 
68). 


INDEX 


Acceptances,  174 

discounted,  176 
Accommodation,  252 

sales  checks,  90 
Accounts  payable,  23 

for  consignments,  171 
for  merchandise,  169 
for  miscellaneous,  171 
Accounts  receivable,  16,  17, 

141 

ledger,  16,  17 
Accruals  —  analogous     to 

serves,  174 

Adding  of  sales  checks,  111 
Address  label  or  shipper,  90 
Administration,  252,  271 
Advertising,  204,  308 

cost  distribution,  308,  311 

help  want,  313 

miscellaneous,  312 

newspapers,  308 

novelties,  311 

prepaid,  161 

records,  66 

relations  to  good  will,  204 

salaries,  308 

signs  and  posters,  310 

supplies,  311 

window  display,  147 
Alteration  charges,  129,  332 

department,  329 

for  stock,  339 

for  window  display,  340 

room  layout,  339 
record,  334 

sales  audit,  129 


20, 


re- 


tickets,  331 
Amortization,  290 
Appearance,  243 
Appropriation  record,  7 
Approval  sales  checks,  91 
Assets,  137,  138 

deferred,  147, 160 

fixed,  154,  175 

liquid  or  quick,  138,  147 
Assorting  of  sales  checks,  108 
Auditing,  108 

Balance  sheet,  131, 190, 191 
Bank  checks,  138 
Banking,  138 
Bills,  19 

Bills  of  lading  acceptance  at- 
tached, 176 
Blunders,  111 
Bonds,  135 

collateral,  136 

convertible,  136 

coupons,  135 

registered,  135 
Bonuses,  40,  130,  313 
Book  records,  3 
Buildings,  154 
Burden,  287 

distribution,  271 

division  of  operating,  13 

ledger,  8 

payable,  9 

register,  9,  11 

vouchers,  9 
Buyers,  170 

salaries,  302 


343 


344 


INDEX 


traveling  fares,  302 
Buying  burden,  302 

Capital,  188-198 
circulating,  149 
investments,  181 
stock,  135 

working,  138 
Carpenters,  321 
Cash  audits,  113 

books,  29 , 

refunds,  92-94 

sales,  75,  262 
Cashiers  balances,  139 

chief,  32 

duties,  32, 112 

vouchers,  111 
Charge  accounts,  16-18 

audit,  124 

credit,  95-265 

procedure,  96 

procedure  posting,  100 

sales,  263 

checks,  80 
Charity,  274 
Charter,  133,  328 
Chart  of  accounts,  11 
Club  plan  sales,  82 
C.  0.  D.  at  the  source,  116 

audit,  122 

collections,  33 

credits,  101-128 

customers'  records,  121 

delivery  sheets,  120 

ledger,  27, 122, 142 

parcel  desk,  78 

register,  119 

returns,  266 

sales,  263 

sales  checks,  77 


sales  checks  audit,  115 

straight,  116 
Collaterals,  167 

redemptions,  186 
Collection  of  sales  checks,  111 
Commission  record,  40, 130 
Commitments,  231,  232 

control,  232 
Common  stock,  133 
Competition  met  scientifically, 

220 

Consignments,  170 
Contingent  liability,  143 

sales  help,  307 

stock  clerks,  307 
Contracts,  167 
Conveyors,  159,  301 
Corporations,  131 

close,  131 

debt  limitations,  7 

domestic,  132 

foreign,  132 

open,  131 

stock  ledgers,  6 
Cost  of  sales,  269 
Cost  plus,  44 
Courtesy,  252 
Co-workers  census,  36 

records,  36 
Credit  audit,  127 

office,  124,  273 

records,  26 

Cumulative  stocks,  134 
Current  assets,  138 
Customer's  identification,  76 

Debentures,  134 
Debt  limitations,  7 
Decorations  interior,  312 
Deferred  assets,  147-160 


INDEX 


345 


Delivery,  299 

equipment,  156 

working  fund,  141 
Departmental  ledger,  4-6,  12 

salary  report,  36 

subleted,  162 
Depreciation,  181 

of  buildings,  293 
Destructive  service,  255 
Determination,  209 
Discount  records,  68,  324,  325 
Distribution  of  delivery,  302 
departmental  rents,  294 
receiving  burden,  299 
records,  5 
Dividends,  7,  134,  152, 188 

cumulative,  178 

noncumulative,  178 

payable,  178 
Divisions  of  control,  16 
Domestic  corporations,  132 

Education,  242,  285 
Educational  director,  285 

welfare,  280 
Electrotypes,  309 
Elevators    and    escalators    ex- 
pense, 288 
Employee's  ledger,  21 

as  sales  promoters,  258 
Employment  bureau,  282 
Enthusiasm,  208 
Examination     for     employees' 

promotion,  286 
Exchange  desk,  92 
Exchanges,  94-102 
Executives,  250 

clerks,  318 

salaries,  272 
Expense  ledger,  9 


Extraordinary  income,  262,  328 

Federal  taxes,  277 
Financial  income,  262,  323 
Fitters,  331 

instructions  for  service,  330 
Fixtures  and  furniture,  155 
Foreign  corporations,  132 

cost  of  merchandise,  304 
Freight  and  expressage,  296 

General  ledger,  4 

General  or  main  office  supplies, 

273 

Good  will,  66,  111,  163 
Gross  profits,  270 

with  exceptions,  221 
sales,  264 

Health,  205 
Heat,  289 
Honesty,  205 

Hypothecation    of    charge   ac- 
counts, 185 

Ideas,  258 

Impersonal  accounts,  6-9, 157 
Import  merchandise,  305 
Income  tax  information  at  the 

source,  43 

Indirect  burden,  147,  312 
Individual  (personal)  accounts, 

143 

Initiative,  206 
Inspectors,  317 
Insurance,  155 
paid  up,  320 
transportation,  299 
Interdepartmental  sales  check, 

35 


346 


INDEX 


Interest,  175 
accrued,  172 

Earned,  326 

on  notes,  172 

paid  up,  327 

prepaid,  165 
Inventories,  57,  144 

beginning,  221 

decorators,  147 

differences,  187 

ending,  225 

supplies,  146 

transit  of  merchandise,  146 

valuation,  145 

workrooms,  148 
Investigating  vendors'  product, 

170 
Investments,  149 

bonds,  150 

debentures,  152 

in  buildings,  154 

in  land,  160 

in  other  companies,  153 

in  stocks,  151 

of  reserves,  152 

with  employees  participating 
as  an  equity,  153 

Journal  vouchers,  4-13 
Judgments  as  an  asset,  164 
as  a  liability,  182 

Land,  160 

Lay  aways,  103 

Layout  as  to  store  service,  247 

Legal  expense,  274 

Liabilities  accrued,  173 

current,  169 

fixed,  169 

limited,  131 


liquid,  138 

Life  of  fixtures  as  to  deprecia- 
tion, 181 
Light,  288 

Long  term  notes,  172 
Loss  account,  327 

Machinery,  159 
Mail  order  credits,  101 
Maintenance  of  buildings,  292 
Man  power  capital,  244 
Mark  downs,  25,  46,  92 
accumulated,  223 
daily,  223 
Mark  up,  44,  144,  221 

accumulated,  223 
Mechanical  bookkeeping,  17 
Mechanics'  liens,  158 
Membership,  280 
Merchandising,    57,    170,    200, 
219 

ability,  241 

best  month  to  beat,  226 

character,  242 

control,  60,  219 

cooperation,  248 

cost,  8 

daily  sales  to  meet  prepared 
plan,  227 

details,  220,  240 

exchange,  95 

knowledge,  206 

location,  245 

manager,  202 

memorandum,  170 

open  to  buy,  230 

planned  sales,  225 

sales  promotion,  256 

service,  250 

stock  to  close  the  month,  229 


INDEX 


347 


store  layout,  247 
Miscellaneous   accounts  receiv- 
able, 142 

Missing  checks,  109,  126 
Mortgages,  158 

Net  sales,  56,  268 
Noncumulative  stocks,  134 
Notes  collateral,  173 

guaranteed  and  indorsements, 

182 
receivable    discounted,    143, 

182 

payable,  172 
payable  statement,  169 

Occupancy,  287 

Office  petty  cash,  72, 140 

salaries,  272 
Offices  out  of  town,  305 

foreign,  305 
Open  corporations,  131 
Operating  burden,  156,  271 
Outstanding  cash  credits,  101 
Over  and  short,  115 

Parcel  post,  300 

Partial  payment  plan,  81 

Part  paid,  C.  0.  D.,  104 
charges,  126 

charges    and   credits   com- 
bined, 104 
credits,  128 

Part  payments,  103 

Paymaster,  39,  140 

Pay  roll  records,  40 

Permanent  patronage  through 
co-workers'  education, 
252 

Personal  accounts,  6,  9,  25 

Planning  department,  281 


P.  M.'s,  40,  307 
Policy,  276 

check  on  merchandising,  236 
Porters  and  maids,  288 
Porters'  supplies,  288 
Postage,  320 

register,  320 
Precancelled    postage    stamps, 

301 

Preferred  stocks,  134 
Prices,  best  selling,  235 
Price  tickets,  92,  95,  298 
Private  ledger,  6 
Profit  and  loss,  4 

defined,  262,  302 

statement,  192-197 
Profits,  188-270 
Provision  for  indorsement,  182 
Purchase  journal,  69 
Purchases,  13,  221 

accumulated,  222 
Purchasing  agents,  100,  125 
discounts,  325 
orders,  100 

Quick  assets,  138 
Quick  liabilities,  138 

Reading  the  balance  sheet,  137 
Receiving,  295 

demurrage,  298 

salaries,  297 

supplies,  297 
Refunds,  112 
Registered  bonds,  135 
Rent  direct  cost,  287 

prepaid,  162 

water,  289 

Repairs  to  buildings,  293 
store  fixtures,  182 


348 


INDEX 


Replacements,  292 
Required  discounts,  70 
Reserves  for  bad  debts,  183 

building  depreciation,  293 

contingencies,  185 

depreciation,  156,  179 

discounts,  186 

leakage,  186 

replacements,  181 

stocks,  70,  234 

taxes,  174 

working,  174 

Retail  credit  extension,  183 
credits  analysis,  184 
merchandise  control,  60 
reduction  slips,  50 
Return  evil,  265 
Revenue  stamps,  278 

Salaries,  302 

adjustments  clerks',  316 

cashiers',  314 

exchange  clerks',  315 

inspectors',  317 

prepaid,  163 

sign  writers'  310 
Sales,  224 

checks,  74 

help  contingents,  306 

planned,  225 

planned  best  month,  226 

planned  daily,  227 

planned  per  cent  mark  up, 
227 

prior  seasons  best,  226 

promotion,  256 

record,  53 

return  cash,  264 

returns,  55,  264 
Salesmanship,  203 


Secret  service,  275 

Selling  burden,  306 

Service,  250,  255,  315 

Shoppers,  259 

Short  term  notes,  172 

Sincerity,  207 

Sinking  fund,  157 

Stock  certificates,  132 

Stocks,  excess,  229 

Stocks,  planned  to  close,  229 

Storage  record,  70 

Store  analysis,  259 

Straight  C.  0.  D.,  116 

Staffer,  18 

Subscriptions     to     periodicals, 

280 

Subsidiary  ledger,  5 
Supplies,  273,  302 
Surplus,  188 

current,  189,  314 

prior,  153, 189 

Tally,  106,  126 
Taxes,  federal,  277 

municipal,  279 

state,  279 
Telephone  contracts,  319 

and  telegraph,  318 
Tracer,  109,  126 

check,  111 
Transfer  checks,  82,  127 

desk,  82 

Transit  accounts  payable,  24 
Traveling  expense,  276,  304 
Trial  balance,  136 
Turnover,  198 

how  ascertained,  200 

in  England,  213 

old    merchandising   methods, 
200 


INDEX 


349 


statistics,  210,  211,  212 

Unaccounted  for  stocks,  187 
Uncollectible  accounts,  185 
Undistributed  cash,  141 

Value,  253 

Value — readjustment  of  stocks, 

222 
Vehicles,  298,  300 


Vendors'  products,  170 
Voucher  system,  11 

Watchman  service,  294 
Will-call  checks,  81,  316 
Window  decorators,  310 
Window  display  garments,  341 
Work  production  tickets,  337 
Work  rooms,  329 


(1) 


Library 
Graduate  School  of  Business  Administraiidflr 

University  of  California 
Loa  Angeles  24,  California 


3 


SOI 


UCSO^ERNREG^^^JJIlill 


A    000179162    3 


